So, you are thinking about selling your Baltimore business. You’ve seen the websites for the big, national brokers, but you’ve also heard some horror stories from friends about their experiences. You want to steer clear of “the bad guys,” but aren’t sure how to tell a good business broker from the type that just wants your listing and an “easy fee.”
Most business owners have these concerns. You know that you need professional advice to sell your company, but don’t know where to turn. You also know that there’s a lot riding on their choice of transaction intermediary (investment bankers, “Main Street” brokerages and local, boutique brokers), and you are right. Choosing the right business broker to sell your business affects the amount of cash you’ll receive at closing and in some cases, can determine whether you find a buyer at all.
Your Type and Size of Business Affects Which Brokers Will Even Consider Selling Your Business
Transaction intermediaries specialize in certain market segments.
Investment Bankers: Are You a Small-fry or Big Guy?
Investment bankers don’t typically work with companies with revenues less than $12MM. That’s a generalization, of course, and thresholds differ from one region of the country to another since every investment banking firm sets its own limits. It is important to ask about those limits so you can decide where your company fits: will you be a small-fry client or a top-priority on an investment banker’s customer list?
Investment bankers typically charge a monthly retainer along with a percentage of the purchase price.
“Main Street” Brokers: Quantity Over Quality?
At the other end of the spectrum are the “Main Street” brokers. They primarily work with the types of companies that occupy Main Street: dry cleaners, restaurants, etc.
They operate much like residential real estate agents in that they accumulate listings, market those listings primarily on their websites and sign buyers to purchase contracts before buyers have had a chance to do their due diligence.
The Percentage-Based Conundrum
This set-up can lead to a ‘quantity’ over ‘quality’ mentality. When residential real estate agents are working off of a percentage-based commission, they are incentivized to sell more properties rather than sell your real estate for the top dollar. You might be asking “how so?”
Although the agent receives a percentage of your home, the percentage is low enough that increases in the bottom dollar of your home won’t be padding their pocket as much as selling another property would. For example, if your home sells from $350,000 and your real estate agent takes 5%, that is $17,500. If they were able to sell it for $400,000 that would be $20,000, so an increase of only $2,500. Although that may seem like quite a bit, they could much more easily make $30,000 by selling two homes at a lower, quick selling price of $300,000.
Just as the above incentive is built into they way real estate agents do business, it could be similar with the broker trying to sell your business. If their commission is mainly percentage based and is a small percentage, it is easy to see where they would rather follow the money that comes with ‘quantity’ rather than focusing on the quality of your selling experience.
Not all “main street” business brokers operate this way or focus on the fininacial incentive, but again—it is about locating the right one among the bunch.
We’re currently writing more about this topic right now!