If you want to sell your home, you can always find a real estate agent to list it, regardless of its condition or even if you are convinced your home is worth 40% more than the comparable sales might suggest. But when you want to sell your business, here are a few reasons a business broker may not want to list your business for sale….
Business Brokers sell their time, skill set, and knowledge. Most business brokers work on a success fee or commission and are not paid hourly for their time. The difference between a real estate broker and a business broker is the time involved with the preparation to understand the business, advertise the business, and deal with the buyers. It’s not uncommon for a business broker to spend 40 hours plus understanding the business, reviewing and recasting the financials, looking at the equipment, leases, employees, etc., and finally, writing a comprehensive business profile that will cast the business in its best light, which buyers will need to understand the business. With only so much time in the day, a good business broker must feel that they have a good chance to earn their fee on every engagement.
Over the past 28 years, we have evaluated several thousand businesses and sold over 800. While there may be a hundred reasons why a business broker might decide not to list your business, it all comes down to a business decision on their part. What is the time required to get the business to market and get it sold, versus what is the likelihood that the business will sell? Every business is unique, but here are a few of the biggest reasons that a broker might or should turn down a listing.
- Personality conflict. Selling a business is a team sport. There is a lot of interaction between the broker and the seller upfront in negotiations, due diligence, and escrow. Problems now mean problems later. So, cutting your losses and passing on the engagement is often a good idea if there are conflicts or disagreements before you sign an engagement agreement.
- Occasionally, a business broker might come upon financial information that they think is untrue or learn information about the business they feel the seller might be hiding. (We are not talking about discretionary or personal expenses, which we deal with every day. We are talking outright fraud or deception) While it’s not the business broker’s job to perform due diligence on their clients, if they do come across a seller who is dishonest before accepting the engagement, that’s a great reason to end the relationship before it officially starts.
- Selling a deli is not the same as selling a $50MM international software company. If the broker is honest with themselves, they should understand this and pass on the opportunity or refer it to a business broker with more relevant experience.
- Other factors that, in the broker’s view, would severely hinder the probability that they can sell the business include:
- A lease, especially with a retail business where location is paramount, that is too short, expired, and cannot be renewed, or with a landlord who is known to hinder the ability of the seller to assign the lease to the buyer.
- Financial records, or lack thereof, that would make the business impossible for a buyer to obtain SBA financing. Of course, seller financing can mitigate this, but if the seller insists upon all cash up front and has tax returns that do not support the price, it’s a deal unlikely to cross the finish line.
- Valuation differences. Of course, the seller always feels their business is worth more. But it’s the business broker’s job to do their research, fully understand the financials of the business, look at comparable sales, and maybe even run the opportunity by a trusted lender. If the business broker has done their job, and the seller will not listen and wants to sell the business at 2X the market value, then often the broker will choose not to engage with the seller.
Of course, you can find someone to do virtually anything, like in any industry. But Business Brokers in San Diego, at least the good ones, have a pretty good handle on the marketplace. By good business brokers, we mean those that are California Certified Business Brokers (CBB), Certified Business Brokers (CBI) by the International Business Brokers Association or have other verifiable and reputable designations.
As a seller of a business in San Diego County, you might not like that it’s hard to find a broker willing to take your business to the marketplace. But do understand that the business broker ONLY gets paid if they can sell your business. Like an attorney who takes a case on contingency, they need to see a way to earn their fee.