Sitting down with a business broker without doing your homework is a risky move. It’s even more risky when, like most owners, your financial security depends on selling your business for the best possible price.

What kind of risks could you be looking at if you’re unprepared?


Risk #1: Failing to See the Big Picture

As we discussed in Can I sell my Maryland business without working with a business broker? there are more potential buyers for your company than just third parties. With proper planning, your children, key employees, co-owners or other family members might be the “best” buyers for your company. No broker we know considers any of those parties as possible buyers.

That’s why we recommend that business owners sit down with advisors who know how to structure all types of exits (transfers to family, co-owners, employees and third parties) to review the pros and cons of all types of buyers before they assume that the sale to a third party is their only option. These advisors have expertise in “exit planning,” and yes, we’ve got it.

As financial and exit planning advisors, our goal is broader and more fundamental than simply selling your business. We help you to determine how much income you will need after you sell your business to live the life you desire and then work with you to make sure that the sale of your business generates a nest egg capable of generating that income.

In short, we’re owner centric and exit agnostic. Meaning: we don’t have a vested interest in what type of buyer purchases your business. Our concern is whether the sale of your business meets your financial (and other) goals. Only once we understand what you need and want to do help you decide which type of buyer best meets your goals. (See Small Business Succession Planning Overview for a quick summary of how we help our owner-clients decide which type of buyer is best for them.)


Risk #2: Hoping for An Accurate Sale Price

As you know, brokers set the asking price on the businesses they list. Typically, they review the financials you provide, consult one of the books on the market that contains industry-by-industry valuation rules of thumb and slap on a price tag. Yes, you may run into the one broker who has the training, expertise and experience in valuing businesses like yours, but that’s a long shot. Folks with that type of expertise are valuation experts and have letters like CVA (certified valuation analyst) after their names. They are CPAs who have pursued additional training in business valuation.

If the broker you meet is less than scrupulous, that price tag may be a little (or a lot) inflated to entice you to sign their listing agreements. No one, but you—the unsuspecting seller—is surprised when there’s no buyer interest and the broker drops the list price not long after you sign on the dotted line.

Planning to exit your Maryland-based company shouldn’t be as risky as rolling your dice for an honest business broker. So, how do minimize your risks and prepare for a meeting with broker?

5 Steps to Take Before You Meet to Sell Your Business through A Broker


Step 1: Know your options.

Only once you and your advisor skilled in exit planning have determined that sales to co-owners, family members and key employees (even an ESOP) are not viable exit paths for you, should you think about whether to use a third-party transaction intermediary. Then you can put your heads together to figure out which type of transaction intermediary (business broker or investment banker) is most appropriate for your situation.


Step 2: Know what you need from the sale of your business.

Most owners have, in their heads, a dollar amount or price that they want/need from the sale of their companies. Unfortunately, most owners haven’t used the following questions to come up with that price:

     1. How much will I pay in taxes on the sale price?

     2. Once I invest the sale proceeds, what’s the likely annual return?

     3. What’s a safe withdrawal rate from my investment portfolio?

     4. How much do I need in annual income after I leave my business? (This is a topic for another article since most owners:

        a) forget to include all the non-compensation benefits they receive and include as part of their lifestyles and

        b) underestimate their spending on activities they postponed for years such as travel, new hobbies, etc.)

     5. How long am I (and my spouse) likely to live?


Step 3: Get a Business Valuation.

You should know, not guess or estimate, at least a range of value before you meet with any transaction intermediary. Valuations aren’t free, but a “thumbnail” or “tentative” valuation costs less than a “formal” valuation and the money you spend to have a CVA come in to review your books is money well spent. Do you really want to go into the most important financial transaction of your life with a guess? Or leave money on the closing table because you (or a broker) underestimated your company’s value?

Perhaps your CPA has experience in business valuation. If not, ask your trusted advisors—especially those who understands exit or succession planning—to recommend an experienced CVA.


Step 4:  Get business broker recommendations from advisors you trust.

How can we put this diplomatically? The business broker world is a lot like the Wild West: there are a lot of business brokers out doing their own thing and not a whole lot of sheriffs keeping track of them.

If you don’t take one other piece of advice from this article, please, please take this one: ask the advisors you already trust to recommend a business broker they’ve worked with and know to be honest and thorough.


Step 5:  Question Everything

We’ve suggested that you pause before you meet with a business broker to question your assumptions about who the best buyers are for your company, how much cash you need from the sale, and its value. But once you finish asking yourself these critical questions, it’s time to start asking prospective brokers questions. We listed 13 great ones in "What Questions Should You Ask A Broker When Selling Your Business.”

Take a moment to read through those questions and after you do, give us a call. We work with our owner-clients every day to figure out which type of buyer and what kind of transaction will satisfy their goals.


Don’t Leave Your Options or Money on the Table by Jumping Straight to Selling Your Business through a Broker

We’re agnostic when it comes to buyers; brokers are not. If selling to a family member will meet your financial and personal goals, great! If you’ve created a great culture and your management team can step up to the plate when you leave, awesome! Let’s put those options on the table and examine them.


You get one chance to exit your company successfully. Selling your business in Maryland through a broker before looking into all of your options is risky business. Don’t you owe it to yourself and your family to do your homework first? Talk to an exit planning specialist today!

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