Pros & Cons of Selling a Business with a Business Broker

Whether you are planning to buy or sell a business, the entire process of landing a good deal, handling negoti...

  • Pros & Cons of Selling a Business with a Business Broker
    Lethabo Moodley Image Lethabo Moodley

    Pros & Cons of Selling a Business with a Business Broker

    • Monday 10th of September 2018
    • Selling

    Whether you are planning to buy or sell a business, the entire process of landing a good deal, handling negotiations, undertaking due-diligence and signing the purchase agreement can prove to be overwhelming. Therefore, many business owners rely on business brokers to carry out the arduous tasks and help them clinch a successful deal. Many others try to take the challenge head-on and save the commission money. It helps them to get the highest price for their business, but they end up doing all the legwork themselves.

    Thus if you are putting up a business for sale in South Africa, you must be aware of the pros and cons of hiring a broker. It will help you in analysing your current situation and making an informed decision. A business broker can be found easily through a random search on the internet or the industry-specific magazines and directories. Let us take a look at the advantages and disadvantages of hiring them.

    Advantages Of Hiring A Business Broker

    1. Business Evaluation

    Arriving at a selling price for your business can be a daunting task as you need to take into account all the tangible and intangible elements of running the company. The brokers have in-depth knowledge of business valuation and can calculate the actual price after analysing the company data and financial statements. Without help, it is hard to examine all the copious amount of data by yourself.

    2. Expert Advice And Support

    Business brokers are experienced professionals who specialise in liaising between the buyers and the sellers. They are aware of the marketplace trends of the specific industry and know how to leverage them. They understand the client requirements and the challenges faced by small businesses in South Africa. They are adept at screening the sales queries to filter out the genuine buyers. Their experience allows them to showcase immense confidence and control over the process. For first-time sellers, they are helpful in providing a wealth of information which is not readily available online.

    3. Advertising Support

    Business owners are not advertisers. They usually do not know how to market their business in the best possible manner. The brokers have been operating in the industry for long and know how to package a company to make it appear appealing to the prospective buyers. They know where they must publish the business listing to attract maximum qualified buyers.

    4. Negotiation Skills

    Due to emotional attachment to the business, it may become difficult for the sellers to negotiate without a bias. However, the brokers are experts in closing the deals successfully and converting interested buyers into new owners of the company. They act as the middlemen and bring a consensus on the terms and conditions to make it a win-win situation for both the parties.

    5. Save Time and Hard Work

    A lot of people hire brokers because they help in saving a lot of time. They have a list of prospective buyers with them and a big network for promoting business listings. They are quick to move at each stage of the selling process and don’t take much time in screening and short listing the qualified buyers.

    Disadvantages Of Hiring A Business Broker

    1. The Broker’s Commission

    The broker is in it for the money. Most of them charge up to 10% for each sale which is a significant amount, keeping in mind the size of a business. It leaves the seller with much cash in hand than expected. That is why many people decide to sell their business on their own and use the saved commission money for reinvestment.

    2. Competency Of The Broker

    With the GDP of South Africa moving up, investment in businesses is also increasing. It means that you can get good returns when selling your established business. However, in the recent years, a lot of unqualified and inexperienced people have set up shop as business brokers. The industry is still unregulated and it can be difficult to find a seasoned person. If you end up with a novice, the selling process can take a long time and may transform into a bad bargain.

    3. Selling At A Lower Price

    At the end of the day, the broker is interested in his commission so he will try his best to get the sale done quickly. That is why, at times, brokers quote a lower price for a quick sale. It doesn’t harm their commission much because more sales mean more commission. Also, they would prefer to get a business sold at a lower price than waiting for a long time to get its actual price.

    4. Lack of Control

    As entrepreneurs, the sellers are accustomed to being in control of everything. They want to be on top of the things and lead the way. However, when you hire a broker, you have to take a step back and let them deal with the issues. You might feel dominated or controlled in the process and may not feel happy about the deal.

    Endnote

    So if you are planning to put up a business for sale in South Africa, then you must think before hiring a broker. Make sure to ask them about their field of specialisation, past clients and years of experience.

  • Author Info Lethabo Moodley

    A business expert, Lethabo Moodley is a management consultant who has been working across domains since 2005. His rich experience includes a Masters degree in business administration from the prestigious Gordon Institute of Business Science and Doctor of Business Leadership degree from Unisa Graduate School of Business Leadership. He has been actively working as a consultant with the biggest firms in South Africa and his contribution in the growth of these organisations is considered invaluable. He has saved a lot of small businesses from going bankrupt and has renewed the lost success streak of the big fish in the market. Business2Sell is delighted to have him onboard for his insightful blogs.