Nearly 80% of all business owners, even highly successful ones, admit that they don’t have a plan for exiting their businesses.
Owners often fail to make succession plans because they have assumptions about the future which may or may not be true.
For example, a business owner may believe that his business will naturally pass to his spouse or other family member. What happens, though, if that designated family member is unwilling or unable to take the reins?
Another common assumption owners make that causes them to avoid succession planning is the idea that they will be able to run the business until they die. They don’t put a plan in place because they don’t like to think about the possibility of having to leave the business sooner than planned, idncash perhaps due to ill health or family problems.
What happens in the absence of proper exit planning is that am owner can find him or herself in the unanticipated position of having to sell quickly, perhaps for less money than they need in retirement.
Frustrated, tired, stressed, and sometimes ill, business owners who need to sell make what they feel is a logical decision and turn the process over to their local business broker.
Over the years, my partners and I have reviewed over 300 selling deals and have come to the conclusion that using a business broker might be the worst decision any seller can make.
We began to question the entire sales process, wondering why most businesses in America never sell, and those that do sell often do so under extremely unfavorable terms for the sellers.
Looking for common threads in those deals, we eventually came to the conclusion that a major culprit hindering the business selling process is the typical business broker.
This came as a surprise as we initially assumed the logical fallacy that someone with the title “broker” is sctuslly experienced in facilitating deals.
The vast majority of business brokers we have run across, however, have disproved this assumption time and again.
Here are just a few of the reasons that I believe you should NOT engage the services of a business broker if you are trying to sell your successful business.
- Most business brokers have never owned a business themselves.
- They are often more motivated by commissions than they are by doing what’s right for both buyer and seller.
- In most states, brokers are not required to have any training, licensing, or continuing education, unlike real estate or insurance brokers.
- Many of them are super at selling their services, but poor at actually providing those services once you’ve paid.
- They could care less if they get referrals, so they don’t care if clients complain about them to others.
- A lot of times they are simply lazy and don’t do much of anything to help the seller.
- Many brokers lack basic financial literacy, business intelligence, and organization that is essential to a successful outcome.
- They don’t know how to plan and excute a successful sales strategy.
- They try and cover their lack of knowledge and training with slick self-serving rhetoric that makes them look better than they really are.
- Many brokers get into business because they’ve failed at other ventures.
- They often have no clue of how to properly valuate a business, thus potentially cheating the seller out of thousands of dollars or causing the sale to drag on longer than necessary.
- They don’t understand risk.
- Often business brokers let sellers think a business is worth whatever the seller wants, however unrealistic that figure may be, just to get the listing. They then pass the buck to the potential buyer, who is made out to be the bad guy for showing the seller the business isn’t worth anywhere near that much.
- Business brokers often ignore confidentiality agreements.
- Many are willing to lie, as long as it serves their purposes.
- Commission-hungry business brokers are obsessed with getting mass listings because they know that without a listing there is NO possibility of getting a commission.
- Focusing on mass listings means they don’t have the time to push the listings they get, causing listings fall through the cracks.
- Many business brokers don’t understand due diligence.
- Most brokers will never tell a seller the truth about their success rates: 87% of listings NEVER sell at all, and of those that do, 3 out of 4 FAIL to meet the sellers initial goals. Sellers have less than a 4% chance of a successful exit.
- Brokers have been known to lie about their personal track records. Many brokers are lucky to complete just 2 successful deals in a year, much less the 10-20 about which they will brag to you.
These are only a few of the reasons why I urge potential sellers of businesses to avoid using business brokers.
Instead, it is much better to seek out the advice of a business acquisition specialist; someone who has experience in the process of buying and selling businesses, who thoroughly understands valuation, and who is not focused on getting as many listings as possible but rather on the needs of the seller and buyer.
Having such a mentor can assist you in developing a viable business exit plan. This means that you will not be forced into making hasty decisions if you are forced by circumstances to sell.
A good business acquisition expert does not work on commissions, and has the best interests of both buyer and seller in mind. He or she also has a tried and true process for selling and a verifiable record of success, along with references and client testimonials.
My suggestion is that before you ever need to sell, you should contact a business acquisition expert first. Most selling specialists are more than wiling to give you a free telephone or in-person consultation.
Prior to this meeting, be sure to write down all your questions, your goals for the sale, even your fears and apprehensions about the process. This will help you make the most of this initial consultation and get a gut feeling for how this particular business solutions provider operates.
If your primary reason for meeting is to ask for business succession planning assistance, discuss fees and expectations and ask for some professional references.