Wednesday 1 February 2012

I want to sell my business ~ what should I do?

There are plenty of business transfer agents (or business brokers) out there who are not just in it for the upfront fee or withdrawal fee.  In fact, most business transfer agents are as keen to sell your business as you are.

So what should you do?

Many Business Brokers are members of the Federation of Business Brokers.  Take a look at the FBB website for details of their members.

Also, try the Business Transfer Agents website.

Is the broker asking for an upfront fee?


If the Broker wants an upfront fee, ask what it's for.

If it's an advance payment for advertising, well that's fair enough, isn't it?  The quicker your business goes on the market then the more prodpective buyers get to see it.  And a £500 contribution towards advertising should be more than enough to cover advertising costs for at least the first 12 months.

If it's not entirely clear what you're paying for then perhaps you ought not to be paying it!

Some Brokers want an upfront fee "to show you are commited to selling your business".  Errr, really?!?  You want to pay big bucks to show YOUR commitment?!?  In the cold light of day, away from the super-salesman speak, it doesn't make sense, does it?  But you'd be surprised by how many people fall for it...err, I mean, show their commitment in this way.

Is the broker asking for a withdrawal fee?


Well, if you didn't pay an amount for advertising at the beginning of the contract then it's probably fair that you might need to contribute to advertising costs when you terminate the contract.  Consider what those costs might have been during the period of the contract though - is the withdrawal fee extravagant compared to what the broker actually paid in advertising costs.

Most medium sized brokers with at least 100 businesses on their books will be paying a few pounds per month to advertise on the Daltons Weekly and the same again on businessesforsale.com.  If they have their own website then they have the costs in running that too.  And, obviously, there will be costs in managing your account internally.  Most Brokers don't advertise in printed media anymore - there's not many people who don't use the internet these days.

When does the broker get paid?

Here's the deal, in my view at least.  The broker should be paid if they find you a buyer and the business is sold.  Not hard to understand is it?

So, if you use more than one agent (which, as they all advertise in the same places would, in my view, be a waste of effort) then you might expect to pay a bigger commission to the 'winning' agent.

If you're on a 'sole selling' agreement then you can only use one agent.

What does the contract says will happen if you sell the business yourself, close it, or decide not to sell?

Well your broker has spent all that money advertising your business, it's only fair that he should be re-imbursed.  So pay him for his advertising.

No, not the £22,000 he's claiming in 'lost opportunity'....just the advertising costs.

In summary, aim for the following contract

1. Pay an upfront fee if it is for advertising.  Make sure it says in the contract that it is for advertising - if you're not sure that it does then get the agent to write it on the contract and both of you initial it.  Aim for no more than £500.

2. Pay a withdrawal fee if you didn't pay an upfront fee, and certainly not more than £500 for each year you've been with your broker.

3. Pay commission ~ when the business sells ~ to the broker who found the buyer.

If the business closes, you decide not to sell, you sell to a buyer that the broker didn't find ~ expect to pay for any advertising the broker did.

And, most importantly, if you agree terms with your broker or your broker tells you what they are going to do, make sure that's what it says in the contract.  If it's a boring and long contract then make a few notes on the back of the contract, sign and date it and get your broker to do the same.  Write PTO on the front of the contract.

If your broker won't do this.....start to wonder why.....

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