Selling your business without a business broker is certainly possible, especially under certain circumstances. This is called For-Sale-By-Owner or FSBO which is the same terminology used to describe real estate owners selling without real estate agents. This will require some effort and you need to have considerable time to spare above and beyond running the business. Because businesses have a significantly lower success rate of selling than real estate, there are less FSBOs in business sales than in real estate sales.
What Types of Business Owners Might Consider Selling Without a Business Broker?
If you are reading this article, perhaps you fall into one of these categories of business owners considering selling your business by yourself: 1) Will sell to a friend, family member, partner, employee or other acquaintance, 2) Received an unsolicited offer to purchase the business, 3) Selling business with real estate and real estate agent offers to sell both, 4) Don’t think the business is large enough or profitable enough or (fill-in-the-blank) enough to engage a business broker, 5) Willing to pay a broker that represents a buyer, but prefer to save on the listing broker commission, 6) Do-it-yourselfer Interested in learning how to proactively list and sell the business without a broker.
- Opportunity to sell to a friend, family member, partner, employee or other acquaintance
It is not uncommon for a business owner to know someone who might be a candidate to acquire or take over the business. These transactions can come in many forms and may be able to be conducted without a business broker, especially if the owner has an experienced group of advisors including a CPA and attorney that specialize in business transactions and the sale of businesses. Selling to an acquaintance may come at the cost of maximizing proceeds from a sale on the open market. While the financial benefit of a business sale or transfer is important to most owners, it may not be the primary consideration for some.
A business broker adds less value in a situation where the owner has a buyer. In such a case, a successful outcome will depend on the relationship between seller and buyer, the structure of the deal, financing, a transition plan, contracts and documentation. If a business owner cannot manage all of this on their own, business brokers will offer a reduced commission or fixed fee to help both sides get to the closing table.
- Received an unsolicited offer to purchase the business
When you receive an unsolicited offer from someone outside your sphere of influence, it is likely they are a sophisticated active buyer or a strategic buyer. Inquire about their background and ask if they have a broker representing them. It is unlikely a buyer would make first contact and then bring in a broker, but not out of the question.
Active buyers often belong to a financial company that specializes in growth through acquisition in a specific industry. It is important to know how they think and operate. It is possible they may provide an indication of interest (IOI), a non-binding document with an offer range and some details on deal structure. The purpose of the IOI is to see if you are both in the same ballpark. They may also indicate numbers verbally after receiving some information. Whether they provide an IOI letter or verbal indication, this will happen after they have received and reviewed financial statements from you.
A strategic buyer is a company that is a direct or indirect competitor or in a related business that can capitalize on synergies with your business. While strategic buyers can be a great fit, there are a limited number of active buyers with enough synergies to be considered strategic. Furthermore, sharing information with strategic buyers poses a bigger risk than sharing information with other buyers. It is not uncommon for buyers to disappear after requesting and receiving significant amounts of information from a seller.
Even if you have a potential buyer, you may want to advertise so you can test the market before making a commitment. Some business brokers offer reduced fees to handle a sale when you already have a buyer. They can also list the business to ensure your buyer offers a fair price and moves forward at a reasonable pace. The listing can exclude or reduce commission if your buyer closes on the purchase.
- Real estate agent offers to also sell your business
When offering a business with real estate, there are many options on how to do it and who can help. See this discussion on buying and selling businesses with real estate.
- Sell both by yourself. See How to Sell a Business for the First Time.
- Sell one or the other by yourself and engage a business broker or real estate broker for the other.
- Have a real estate broker handle the real estate and a business broker handle the business. This option can work if the two professionals have a good working relationship, which means it’s likely one brought in the other. It can be a disaster otherwise.
- Have a real estate broker handle both. Licensed real estate professionals are allowed to sell businesses in the US, yet most are unaware or uninterested. The NAR (National Association of Realtors) code of ethics asks real estate professionals to bow out or get assistance when dealing with transactions outside their area of expertise.
- Have a business broker handle both. In every state, the business broker must be licensed in real estate in order to sell real estate. See more about business brokers and licensing.
There are far fewer business brokers than real estate brokers. Business brokers are much more likely to have expertise in real estate than real estate brokers are to have expertise in business brokering. If your real estate broker offers to also sell your business, perhaps for less commission than what a business broker would charge, ask questions before being tempted.
Under most market conditions, real estate has a significantly higher probability of selling than does a business. As both a former full time real estate broker and a current full time business broker, I would highly recommend having a business broker, rather than a real estate agent, sell both the business and the real estate if you prefer one intermediary and if the business broker is also licensed to sell real estate and is experienced in selling real estate. Most experienced business brokers will be capable of handling the sale or lease of real estate and they will know how SBA loans work for purchasing a business with real estate. If a real estate professional knows all of this, that would be rare but not out of the question and then you should be fine letting them handle both.
- Don’t think my business is large enough or profitable enough or (fill-in-the-blank) enough to interest a business broker
Business brokers usually have minimum fees ranging from $10-25,000 making the use of business brokers impractical for very small businesses. Small online businesses are often sold by their owners at low prices on digital marketplaces. Traditional businesses that are small or unprofitable may not attract brokers.
However, make sure you are not excluding brokers based on false assumptions. Some business brokers are more selective than others. When I was a newer broker, I successfully sold businesses that other brokers turned away. It is not uncommon for struggling business owners to utilize brokers to sell their business for little or no gain simply so the seller could get out of their lease and other obligations.
- I’m willing to pay a broker that brings me a buyer, but I want to save on the listing broker commission
Unlike real estate, the majority of business sales in most states are conducted by one broker, the listing broker. If you list your business by yourself, most of your inquiries will come from buyers who have no broker. A much smaller number of inquiries will come from brokers who may solicit you to list with them or may have a potential buyer. If your ad does not indicate whether or not you will pay a Buyer’s broker, prepare to answer that question from brokers who may call you..
Once a buyer realizes you are the owner and not a business broker, they may proceed with you directly or they may seek out a business broker. The broker can bring a structure and a process to the transaction. Whether you welcome this or not, it’s important to be prepared.
If you don’t want to engage a broker with a formal listing agreement, and you do not want to put in the effort to actively list your business for sale, you might be tempted to say to any brokers you meet that you are open to discussion when they have a qualified buyer for your business. This could happen but don’t hold your breath. Brokers primarily operate in a 100% commission environment and are unlikely to assist, or even remember, owners who have talked to them in passing and decided not to list.
- Interested in learning how to proactively list and sell my business without a broker.
If you don’t already have potential buyers that have contacted you and you want to find buyers, you can advertise your business online. Before listing your business, you can use these sites to research how listings are marketed and how businesses are valued relative to their earnings. Keep in mind that most businesses listed for sale will never sell. The success rate can be as low as 10-30% depending on the period and the source of providing this data. You should also know that most businesses that do sell, sell well under the list price and are highly likely to include seller financing or earnouts.
Where Can I Sell My Business For Sale By Owner?
Businesses for sale are advertised online in places like craigslist.org. Nowadays, there are many more online platforms dedicated to businesses for sale. Some focus on traditional businesses, others on digital businesses, others on franchises, and some have them all. Most of the listings are advertised by business brokers, but these online platforms also welcome business owners to post their businesses for sale by owner. Whether a broker or a business owner is posting the listing, there is a fee to post your business for sale. Once you post, be prepared for inquiries which will mostly come to you by email. Prepare to answer your phone as you will receive occasional phone inquiries as well. For an extensive list of places online to find business listings, read this article on the best places for businesses for sale.
How Can I Sell My Business For Sale By Owner?
Preparation requires researching businesses similar in size and scope to yours. You’ll want a general idea of the value of your business so you decide on a list price and speak confidently with buyers. Research on BizBuySell will give you a good valuation range as long as you are comparing similar businesses of a similar size. Alternatively, you can engage a business valuation expert for a fee.
Keep in mind that closing prices are on average 10-20% less than list prices on BizBuySell. Unlike real estate, there are no hot markets where listings sell over asking price. And finally, all cash sales are rare. Most business buyers will expect some seller financing or earnouts.
Once you have a buyer inquiry, it’s a good idea to have them sign a Non-Disclosure Agreement (NDA) to keep your sale confidential and to agree not to share information or approach customers or suppliers. The overwhelming majority of buyers understand this is part of the process and will sign. Even private equity firms will sign an NDA as long as it is not too cumbersome. If you have a buyer unwilling to sign an NDA, you’re better off moving on. This is the simplest document they will sign, so it’s questionable how likely they are to sign other documents along the way.
It is extremely important to establish chemistry and trust with the Buyer. This goes both ways. You need to have faith in the buyer’s skills to entrust them with your business, especially if you will be financing a portion of the price and training them. You also need to be prepared with clean financials, sales reports, tax returns, asset lists and eventually employee rosters and customer lists. Buyers lose faith, trust and interest in slow sellers. They view slow and unresponsive sellers as unorganized, unmotivated, and perhaps untrustworthy.
Without a broker, you’ll need to work closely with an attorney who can provide contracts or work with the contracts you gathered from other sources. It is important to pick the appropriate business sale transaction attorney for your size transaction. A mismatch between the attorney’s experience and the size of your transaction or a mismatch between opposing attorneys will decrease your chances of success considerably.
You may also want to read How to Sell a Business for the First Time which is written under the premise that you will use a business broker.
How Do I Respond to a Buyer About Buying My Business?
Finding a good buyer will take some time sifting through and qualifying many inquiries. Most buyers are not targeted. They consider the world as their oyster. Opportunities abound and no particular listing, including yours, is special.. Being responsive will give you an edge since many buyers fill out interest forms and don’t receive follow up emails or phone calls. These buyers quickly move on to other listings when the response is lacking.
After the buyer signs an NDA, you can give them a call or send a packet of information including a detailed description of your business with financials. After answering a few initial questions, find out the buyer’s background and financial qualifications. If you haven’t ruled each other out, you can keep the conversation going. An interested buyer is likely to ask for more information or possibly an in-person meeting.
Once the buyer has enough information about the business to draw an early conclusion, you can ask for a rough idea about what they would like to offer and whether they will need a loan or seller financing. If you get feedback on value that seems promising, don’t get too excited just yet. This is the beginning of the roller coaster ride.
Why Would A Buyer Want to Buy a Business Without a Broker?
The obvious reasons a buyer may want to buy your business directly without a broker are 1) They feel you may be motivated to save broker fees, giving them an advantage coming in directly, 2) They are professional buyers who would prefer brokers are not involved in educating or protecting sellers, 3) They want to avoid the competition that comes from an active listing, 4) They want direct access to the seller for more streamlined communications and negotiations.
Why Would A Buyer Prefer to Buy a Business With a Business Broker?
Some buyers prefer to have a business broker in the deal because 1) They can communicate and negotiate through the broker without offending the owner, 2) The broker brings professionalism, a process, and proper contracts, 3) The broker may have other businesses that might interest the buyer, 4) The broker can be a sounding board for the buyer’s through process, 5) The broker can help save the buyer fees by pushing attorney consultations toward the end of the process, 6) The broker can facilitate a conversation with the landlord.
What Types of Owners Are Best Able to Sell Their Business For Sale By Owner?
Clearly it takes experience and a trusted set of advisors to sell a business for sale by owner without an intermediary. You’ll want to read What are the Inescapable truths of Buying or Selling a Business? The most likely owners to succeed are:
- Previous owner who sold a business in the past with or without a broker
- Business flipper
- Owner of a portfolio of businesses
- Affiliated with potential buyers: friends, family, acquaintances, partners, employees, customers, suppliers
- Serial Entrepreneur who has bought and sold businesses
- Current or previous accounting experience in business sales and acquisitions
- Current or previous legal experience in business sales and acquisitions
- Current or previous intermediary
- Absentee or semi-absentee owner with extra time to commit to selling their business
- Owners of smaller digital businesses or startups who can utilize niche business-for-sale platforms