Selling your business is stressful and wrought with risk. Any misstep or miscalculation can have disastrous short and long-term financial consequences.
Consultants, advisors, and resources abound to “support” business owners.
However, many business owners, either through inexperience, lack of sophistication, or a simple lack of bandwidth don't recognize that the model - as currently constituted - is not built in their best interest.
Business owners are presented with largely tactical, templated solutions that make money for accountants, lawyers, and M&A specialists. The approach is based on efficiency, speed, and accuracy, but delivers little in terms of strategic insight, and as a result, opportunities are missed and value is lost.
Here are some of the reasons why:
1. Commission-Driven Motivation
Many business brokers work on a commission basis, earning a percentage of the sale price once the transaction is complete. This structure can create a potential conflict of interest, where brokers may prioritize closing deals quickly over achieving the best possible price for the business. In some cases, this can lead to pressure on business owners to accept lower offers just to finalize the sale.
2. Lack of Industry Expertise
Not all brokerage firms are created equal, and some may lack the necessary industry-specific knowledge or experience to effectively represent a business. Brokers who are not familiar with the nuances of an industry may struggle to properly value the business or attract the right buyers. This knowledge gap can result in suboptimal sale outcomes that do not align with the owner’s interests.
3. Inadequate Marketing Strategies
Effective marketing is crucial for attracting qualified buyers, but not all brokers invest the time or resources to create comprehensive marketing plans. Some brokers may rely on basic listing services instead of actively promoting the business through targeted outreach or personalized marketing campaigns. This lack of effort can limit exposure, resulting in fewer offers and lower sale prices.
4. Poor Communication
Communication is key in any business relationship, but it can sometimes be lacking when working with a brokerage firm. Business owners may find that their brokers do not provide timely updates or fail to thoroughly explain the sale process. A lack of communication can lead to misunderstandings about the status of the sale, leaving owners feeling anxious and disengaged from a process that directly affects them.
5. Focus on Quick Transactions
In some instances, brokers might prioritize closing deals quickly to move on to the next client, rather than focusing on finding the best fit for the business. This approach can lead to rushed negotiations or insufficient vetting of potential buyers, putting the business at risk of inappropriate ownership transitions that may not align with the owner's vision for the future.
6. Insufficient Post-Sale Support
While business brokers often assist with the pre-sale process, some may fall short when it comes to providing adequate support after the sale is concluded. A lack of guidance during the transition phase can leave both the seller and the new owner struggling to navigate the process, ultimately affecting the long-term success of the business.
7. Ethical Considerations
Unfortunately, the brokerage industry is not exempt from ethical concerns. Some brokers may engage in questionable practices, such as inflating valuations to win clients or failing to disclose buyer qualifications. Such behavior can undermine trust and lead to unfavorable outcomes for business owners.
Conclusion
The business brokerage model is broken. Brokers are incentivized to get to a sale quickly and secure the commission, not maximize returns for the business owner.
At Cunningham & Associates, we believe there is a better way.
We can help you sell your business the right way. We can help you maximize the value you have created, keep more of the proceeds from your sale, and protect you and your estate from unnecessary tax liabilities.
Will we make money from this? Of course, but our model is based on the long-term value of your return, not on the sale price of your business.
If you're considering selling your business, set up a time to talk with our team today.