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Should I use an investment banker or business broker to sell my business?

- John Mickelson, managing partner Midwest Growth Partners, is IowaBiz's blogger on succession planning. Read more about him here. 

In previous articles, we have learned about potential buyers for your business, the golden egg syndrome, the importance of succession planning and delegation.  Today we will discuss whether or not to engage a professional to help sell your business once you have mentally decided to sell. So...should you?

It depends!

Hiring an intermediary – typically called a business broker or investment banker – to help sell your business is similar to the thought process of whether or not you should hire a Realtor to sell your house. There are pros and cons.

On the positive side, if you find a competent and ethical intermediary (not all of them are, so search around for references), they will do the “full-time job” of selling your business, leaving you the ability to do the full-time job of running your business. Owners who think they can do both are often sadly mistaken.

A good intermediary will also bring several interested qualified buyers into the process, thus creating a competitive environment, which theoretically will produce a higher purchase price or more competitive terms. The intermediary will serve as your trusted confidant to will represent your interests in the process.

The intermediary should also pre-qualify the buyers to ensure they have the requisite capital to facilitate the purchase (many buyers say they do, but do not).

On the negative side, the fees charged upfront (usually a one-time or monthly non-refundable “retainer”) and at transaction close (a “success fee”) are typically steep and can dramatically lower the seller’s take-home proceeds from the sale.

A success fee is especially painful if the business owner already has a handful of qualified buyers in mind who might have an interest in purchasing the business, have capital, and can close the transaction quickly.

An intermediary will also slow the process down as they gather information about the business, suggest a marketing plan, talk to potential buyers, etc. Depending on the situation, this may be OK, but if the seller is seeking speed and efficiency, a full-blown sell-side process like most intermediaries run will take too much time.

Finally, although intermediaries will require potential buyers to sign a confidentiality agreement, the fact is that reams of your private company data will go into the hands (and computers) of literally dozens – potentially hundreds – of strangers because the intermediary will reach out to that many buyers (and each buyer will likely have two to three people working on the transaction plus their bankers, accountants, attorneys, etc). Once that information is in other hands, it is very difficult to control access and dissemination. If the seller controls who gets the information from only working with a small group, this risk is mitigated.

Like many important decisions in life, it pays in this situation to gather all the facts, ask for many opinions, and then decisively make the decision that is best for you.


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