So You Might Sell Your Business Someday. Do You Need A Broker?

This is the second installment of a series discussing potential pitfalls of which closely held business owners should be wary when they are trying to sell their business. Here's a link to our first installment.

After a lifetime of pouring time and energy into growing and expanding, Pawlenty Energy, JR and Sue Ellen Pawlenty are ready to sell their business and retire. Having never sold anything of this magnitude, JR and Sue Ellen have no idea where to start to try to sell their company. Even more challenging is that, until the money exchanges, they must continue to run their business. Marketing to sell their company will be a hassle that could negatively affect their operations, their personnel and their reputation both with their customers and with their vendors. Their friend Nancy Noitall recommended that they hire a business broker to assist them in handling the sale. Is this a good idea?

Benefits of a Business Broker

Business brokers can provide a valuable resource to sellers. For example, a business broker can mass market a company when the seller does not already have a prospective buyer lined up. The broker also serves as the seller's spokesperson, allowing the seller to concentrate on running the business instead of dealing with the daily distractions that arise from trying to get a deal done. This includes screening prospective buyers to ensure they can afford the sales price. A broker can also come up with a market value for the business based on the sales prices of similar businesses.

Risks of Using a Broker

Sellers face some risks using business brokers. Because a business broker is the seller's spokesperson, the seller would likely be liable if the broker misrepresented the business to a buyer. Business brokers also typically use form agreements for each transaction. If there are unique aspects of the transaction, or the business, that are a material part of the sale, form agreements may not address those issues and create the potential for litigation between the buyer and seller down the road.

Should I...