Business Sale Brokering - Accidentally stumbled on this

3 replies
Well when compiling the financials for an engineering company I saw a massive $15k prepayment for consulting. When we approached the company they said this was pre-payment for a business broker to help them sell the company. Well this sounded very weird on further investigation this was a service fee from the broker and on sale of the company they would charge 2% but a minimum of $45k with the company asking price of a million dollars it meant they would have to pay the $45k and the fine print was even if anyone else sold the company they expected this money.

Well we offered them legal advice to get out of the contract and where able to sell them on an online marketing strategy to sell the business with a $1500 monthly retainer for a max of 6 months and a lower percentage on the asking price. We have created many leads as the company is actually extremely well priced and I know will sell it soon. It just amazes me how people try and take advantage and never add value … yes the onus is on me to not just be another snake oil salesman but of that I am very confident.

Strangely the strategy has gained momentum as we have another request to do the same thing for another company. So online marketing to sell offline companies who knew the market was desperate for an online perspective well hear in South Africa anyway and the monthly retainers are decent with a decent sales commission at the end.
#accidentally #brokering #business #sale #stumbled
  • It's funny how you could plan on offering one thing but end up offering something completely different, only to find it is much better than what you were planning. Glad to know you're about to do this again with another company.
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    • Profile picture of the author MRomeo09
      Listen I'm not a business broker, but I have sold a couple of businesses and bought a few businesses. Be careful, because what you don't know CAN hurt you. If you're reading this post and you live in the US be careful as many states require you to be licensed to be a business broker.

      It's not uncommon for business brokers to charge up front fees. We recently paid $80k to Weil, Gotshal and Manges to put together our book. We have around 300 pages of documentation on our company now that we can give to prospective buyers. It's a lot more complicated than just gross and net. Why we chose Weil was because they have a history of completed transactions in our space getting 8-12x multiples. They have a buyer list, for instance we were contacted by Berkshire Hathaway but the terms were unacceptable.

      There are also many major things to pay attention to in the negotiation, it's more complicated than virtually anything you'll ever be involved with until you're doing government contract work. Unless you're VERY sure you have a competent lawyer who has completed 20+ M&A transactions you should be very careful. What you don't know can bite you.

      With buying a business there are hundreds of little details that need to be negotiated. And what you don't realize because you haven't done this before is it takes a TON of shepherding to get from point A to point B. Most deals fall apart 2-3 times before they finally close. And that's where a good business broker makes their money as they keep everyone focused and on point. I'll tell you right now I probably wouldn't have gotten as much money and almost assuredly wouldn't have closed my business sale without a competent broker that kept us focused on the end goal.

      One of the big things that a business broker did for me is to weed out the time wasters. Because they have a list of buyers who have previously bought businesses, I spent less time wasting dealing with the riff raff. How are you going to screen the potential buyers, to avoid annoying the hell out of the business owner. And then next how are you going to protect the business owner's confidentiality? What do you have in place, because most business owners if they know what's good for them will try to hide the fact that they are selling from their employees, suppliers and competitors?

      It's probably not as easy as you think it is in other words. And again if you're in the US be very careful before you even consider something like this. Find out the laws.

      The marketing of a business for sale is not nearly the same as the actual shepherding a business from listing to completed sale.
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  • Profile picture of the author Alfred Shelver
    Thank you for such a detailed post amazingly informative ... yeah we do have a great professional team behind us ... and luckily in Africa rules not as strict. ..
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