Should I use a business broker? 4 reasons why you shouldn't.

You may be asking yourself, "Should I use a business broker?" It's a great question to ask yourself as you plan your Biz Retirement.

Believe it or not Business Brokers have been around in the United States for over 250 years. For many years they have been the go-to option for business owners who have sold their business. With the shifting landscape of how businesses are being bought and sold today, my opinion is that Biz Brokers may no longer be a great fit for small business owners.

First, let's address a Biz Brokers' favorite "F-word":

Fees.

Non-Refundable Upfront fees, to be specific - Not all brokers charge them - but most do. Here's some fancy "F-word's" embellished by important sounding adjectives: -Engagement Fee -Listing Fee

-Valuation Fee -Marketing Fee -Work Fee -Consulting Fee Fees are perfectly fine if you are paying for a job to be done, but the adjectives describing these fess are actually part of the work product that Brokers are suppose to deliver. Work such as educating you, creating a valuation packet, marketing and listing your business, etc. should be be paid for with the sales commission. The problem with fees - is that you're paying twice for the same work! Sometimes fees are a hidden signal that the Broker secretly thinks your business is unsellable. Let me explain: Brokers are notoriously known for the "list it and leave it" method. This method is when a Broker charges you a fee, lists your business on one of our competitors websites - that doesn't protect your privacy - and just waits around to see what happens. I've had a Broker literally admit to me that he will take 100% of businesses that walk in his door, even if he's 95% sure it will never sell. He explained to me that in the 5% case that it does sell, "at least he gets paid".

Others have seen Brokers collect fees as their main source of income. I have heard people joke that Brokers are not in the business of selling businesses, they're in the business of collecting fees. Ouch! Not a very funny joke if you ask me. Business Brokers not only "F-word" you, they tax you, which leads us to our Second point: You have to pay the "Failure Tax" when you sell your business with a Broker. In order to understand the Failure Tax, we have to first understand the 80BOR ("BoBoar") aka the 80% Business Owner Rule. This rule represents the statistics that roughly 80% of a Business Owners' net-worth is tied up in their business and that 80% of businesses NEVER sell. This means that when the Business Owner sells their business they not only have to compensate the Broker for the work they've received, the Owner also has to compensate the Broker for the 4 other businesses they failed to sell (80% failure rate).

This "failure tax" leads us to why Brokers prefer a commission and to our Third point: Business Brokers want you to "give-up" your business to them. A Broker's commission tier speaks to what they're really after; money. The tiered system has a small business paying a much higher commission percentage than a larger business. The reason for smaller businesses requiring a larger commission - a Broker says - is that it's harder to sell a smaller business.

In some facets this is true; for example small business owners are less likely to prepare for an exit - thus making it harder to sell, or smaller businesses are a "job" in which a buyer goes in debt to work (who takes out a loan to work a job?), etc. but this speaks more to owner readiness and not so much the difficulty of selling a smaller business. Is it really harder to sell a smaller business over a larger one - all things constant? At first glance a commission structure sounds reasonable because it aligns your expected outcome (selling the business) with their payment structure - it essentially incentivizes them to reach your goal.

However, a more aligned approach would be an hourly consult fee where you only pay for what you need vs. a one-size fits all (commission). For example, if you need help creating a business package for buyers, or understanding an Letter of Intent (LOI), you could pay them for what you need leaving out the things that you don't. I've outlined a plan where business brokers could charge significantly less commission, or convert to an hourly structure, while doing 50-70% less work, but overall potentially making more money, partnering with BizRetire. That article is Here.

Lastly, binding agreements. To top it all off Brokers want to lock you into exclusive work agreement / exclusive right-to-sell agreement. Selling a business takes 6 - 18 months, depending on your size, industry, price and preparedness. The truth is that it can take longer with a Broker. Brokers are typically more incentivized to focus on businesses that are larger than yours, in order to receive a bigger commission. Broker can easily spend their whole day vetting buyers via emails, calls, and texts receiving anywhere from 10-100 for each businesses, everyday. If you're last on a Biz Brokers list of priorities you may never end up selling your business or extending the time drastically. Brokers are concerned with locking you in; but when it comes to their performance for you: they're rarely locked in - unless you're their biggest potential commission check.

Summary: If I were to say to you, " I know a person who charges a non-refundable up-front fee, that locks you into a legally binding work agreement, forcing you to pay a failure tax, and is not prioritizing their work for you, while knowing they only have a 20% success rate" and "You should use them", you would hopefully say "you're crazy" or "that sounds like a scam". But unfortunately, that description is a Business Broker in a nutshell for small business owners. The good news is that BizRetire.com was created with small Business Owners in mind. You are our priority and we ultimately seek to serve you. We believe that our service is better than our competitors and better than Brokers in most instances. Want to learn more about why that is? Check it out Here. Not quite ready to sell your business? No problem! If you'd like us to help connect you with experts we currently do that for free, find out more Here.

Disclaimer: When we say Business Broker we don't mean a Mergers and Acquisitions (M&A) person, or an Investment Banker, we mean the agent that deals with operator ran businesses typically in the $2 million and under revenue space; where business is a bit more "cut and dry" - less complex. We do believe and encourage you to always hire a panel of experts when you plan your exit or are ready sell, no exceptions; none. We are also not saying that business brokers in general are a scam - some do great work - and there are times when you should definitely hire one. You're an adult; make wise decisions, research, study, and consult with experts before making any decisions.