Owners often imagine the buyer just appears. Sometimes one does, the way two appeared for me, but most of the time finding the right buyer is real work, and there are only three ways to do it. You hire a broker or M&A advisor to run the sale for you, you sell it yourself, what people call for sale by owner, or you sell straight to a buyer you already know. Each costs a different amount, takes a different amount of time, and tends to land you on a different price. Which one fits you depends mostly on how big your business is and whether a buyer is already at the door.
The three paths, plainly
- A broker or M&A advisor. You pay the most in fees, typically somewhere around 7 to 12 percent of the sale, and the least in time and stress. The right advisor finds buyers you would never reach on your own, keeps your name confidential while they do it, and runs several of them against each other. For most businesses from roughly a million dollars on up, this is the path, and the fee is usually worth it.
- For sale by owner. You keep the fee, but you spend the hours, you carry the confidentiality risk because the listing is public, and you usually reach a smaller pool of buyers. It fits a smaller, simpler business with an owner who has the time and the stomach for it.
- Direct to a buyer you know. Cheapest and fastest, but only on the table when the buyer already exists, a family member, a long-time employee, or a partner you have worked with for years. With one buyer and nobody bidding against him, the whole job of protecting your price falls on you.
Who the buyer actually is changes the price
It also helps to know who tends to show up, because different buyers pay for different things. A private-equity firm buys cash flow it can grow and resell, pays a strong but structured price, and cares most about whether the business runs without you. A strategic buyer, often a competitor or supplier, buys something to bolt onto what they already have, and can pay the highest absolute price when the fit is real. A family member or key employee usually pays below market, and you often finance part of the deal yourself, so your retirement now rides on them running it well. Knowing which type is across the table tells you which strengths to put forward.
The one thing that beats every sales tactic
Whichever path you choose, the lesson that did more for my final price than any negotiating point was competition. When I sold Protect A Bed, two buyers bid against each other, and one of them was the New York firm that bought. One bidder names a price, while two bidders discover what it should really be. You can create that with a broker, with a quiet outreach of your own, or simply by being honest with one serious buyer that you have options, and however you get there, a price set by competition beats a first offer every time. And if you do hire a broker, treat the engagement letter as the real multi-year contract it is. Ask the fee and the floor, whether any retainer is credited against the success fee, the length of the "tail" that lets them collect after the engagement ends, whether the listing is exclusive, who actually runs your deal day to day, their record in your industry, and what you owe if you do not sell. Get the answers in writing, and have your own attorney read the letter before you sign.
Chapter 5 checklist
- Decide honestly which of the three paths fits your size and situation: a broker, selling it yourself, or a buyer you already know.
- If a buyer is already at your door, do not let that one conversation become your only conversation. Create at least the credible possibility of competition.
- Think through which buyer type you are most likely to attract, and line up the strengths each one cares about most.
- If you hire a broker, ask the seven questions above and have your attorney read the engagement letter before you sign anything.
- However you sell, build a real or implied auction, because a price set by competition beats a first offer.