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Should You Hire a Business Broker to Help Sell Your Business?

Cliff Ennico on

"I run a small manufacturing business. We have only one product, but it's a doozy; even during the pandemic, our annual sales have been in the mid-six figures. Since I'm the only one working in the business, our profit margins are 80% or better.

"We had a patent and trademark for this product years ago, but I let them both expire. There's been a couple of Chinese knockoffs entering the market, but I've done my marketing well: Our product is everywhere online, and just about every online review says we are way better than the knockoffs. In any event, they haven't impacted our sales.

"The thing is, I'm getting old -- will turn 80 next year -- and I want to enjoy what's left of my life. I've had a couple of offers from companies that make similar products, but I really don't know how to price this business or how to figure out if I can get a better offer elsewhere.

"I've been thinking about hiring a business broker, but those guys are just so darn expensive. I don't know if I want to spend 10% to 15% on someone who's just going to sign up a deal with someone I'm already in touch with. Yet I'm afraid of taking this on myself for fear that I will sell myself -- and my life's work -- short. Any ideas?"

My opinion of business brokers has mellowed somewhat over the years. When I was first starting out, business brokers were the last place you went to sell your business. The perception was that if a business was listed with a broker, it was a "dog with lots of fleas" that the owners were desperate to unload because they knew something (usually bad) that the marketplace in general didn't.

That has changed over time, mainly because business brokers have changed the way they do business.

 

A good business broker does much more than just find a buyer and negotiate the purchase price. The right broker will:

-- tear apart the business and figure out its strengths (those factors that will drive a sale price up) and weaknesses (those factors that will drive a sale price down);

-- access both print and online databases and put together a list of comparable businesses that have sold within your geographic area in the last three to five years;

-- determine the right "multiple" of your business's gross sales or pretax earnings ("EBIT," or "earnings before income taxes") that will dictate your initial offer;

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