Should You Sell Your Own Business?

For Sale by Owner
"Garage Sale" Environment

Q: What are the advantages of selling your own business (vs. using a broker)?

A: You avoid what is normally a 10% commission (for deals under $1 million in value). For some business owners, this is sufficient reason to sell on their own. We freely admit that we’re biased, but our experience (over 27 years and 67,500 businesses sold) has shown that for the vast majority of sellers, the true cost of “for sale by owner” is far, far higher than 10%.

Q: What are the disadvantages of “for sale by owner”?

1. “For sale by owner” creates a garage sale, bargain-basement atmosphere
   Have you ever sold anything at a garage sale? Then you know you get frustratingly, often insultingly low prices at these sales. For sale by owner attracts the same type of bargain-hunting, local-only buyers who think you're desperate and pay accordingly. The environment you want, and what VR creates, is not a garage sale but rather a “masterpiece art auction”, the kind in which Rembrandts and Van Gogh paintings are sold for millions of dollars. In a VR auction, well-healed, pre-qualified buyers from around the world compete against each other for the right to purchase your business.
2. Your probability of sale is less than half of VR’s, and expected time to sell longer
   Nationwide, only 18% of business owners are successful in selling their business on their own. At VR, we sell 43% of our listings, and in less time than owners.
3. You’re expected sales price will be 14-33% lower
   Sales prices of owner-sold businesses are consistently and significantly lower than businesses sold by professional business intermediaries.
4. Your exposure to buyers will be dramatically less
   Individual business owners can rarely reach more than a handle of buyers, typically through newspaper classified ads. VR, by contrast, has a worldwide network of more than 110 offices, more than 500 agents, and tens of thousands or active registered buyers worldwide. VR offices have invested more than $1 million in Internet marketing, ensuring that our listings appear at Google, Yahoo and the top of all the leading search engines. Our Hawaii offices alone have spent more than $25,000 into Internet marketing in three different languages, and have superior Internet rankings. In Honolulu, we participate in the Board of Realtors to reach Realtors who may have clients interested in buying businesses as sell as real estate. Since it makes no sense for you to replicate our investment, you will need to settle for much lower exposure.
5. Lack of professional marketing
   Every day, cotton dress shirts are sold at Walmart for $15 and at Nieman Marcus for $300. The difference in cost to produce the shirts is typically just a few dollars. Why the huge difference in selling price? While there are certainly style and quality differences, we suggest the primary difference is marketing. The right, highly professional marketing can significantly increase the sales price of any product. The professionals at VR Hawaii have created marketing campaigns for Fortune 500 companies, venture capital funded Internet startups and some of the most valuable companies in Hawaii. We know how to package and present your business to maximize buyer interest. Moreover, we refer buyers to an exclusive network of marketing specialists that can show them how to develop business plans that accelerate the growth of your business, and justify a higher purchase price.
6. Your risk of a confidentiality breach is much higher
   If customers, employees, or suppliers discover your business is for sale, your business could be severely damaged. When you are selling on your own, you remove a critical buffer between you and the buyer, and lose access to our proven systems for keeping the sale confidential (see VR’s Protecting Your Confidentiality for details.)
7. Expensive, irreversible mistakes
   Think about when you first started your business. How many naive mistakes did you make in marketing, operations, hiring, equipment, etc.? We suspect those mistakes cost you tens of thousands of dollars or more. You wouldn't make those same mistakes today because you’ve learned from years of experience. Well the same learning curve is relevant in our business. There are countless challenges and pitfalls in selling a business that you may be completely unaware of, for example: What messages about your business will attract the most buyers? How can immigrant buyers best be reached? How can you preserve confidentiality throughout the sale process? How should the purchase and sale agreement be structured to minimize risk? What are the most common “deal killers” during due diligence (there are many!)? Which banks are likely to lend the most money to a buyer, to maximize the sales price (hint, they are NOT in Hawaii)? Etc. Mistakes in these areas will be far more expensive than our commission, and in some cases can cause irreversible damage to your business.
8. Negotiating effectiveness
   Negotiations for the sale of a business can be protracted, exhausting and emotionally demanding. Experience shows that the sale of a business is as stressful a life event as a divorce. Business owners who are emotionally involved in their businesses (and almost all are), often make costly mistakes in these negotiations. Just as a surgeon would never operate on his or her own family, you shouldn’t negotiate the sale of your business. If you look back over the most difficult decisions you've made about your business, you'll realize that emotional decisions on critical issues can be extremely costly.
9. You’ll have to risk thousands of dollars before the deal is closed
   Most sellers dramatically underestimate the marketing and especially legal costs of selling their business. We buy advertising in bulk and get much better rates than you would on your own. In addition, as part of our services, we provide you five different legal documents that have been proven over thousands of transactions and developed with legal fees in excess of $20,000. You can spend these fees on your own upfront before a deal is done, to get unproven documents, or get them included in our services at no risk to you.
10. Time and distraction
    Selling your business is a full time job, if done properly. Many sellers see their business decline substantially in value (far more than 10%) while they're focused on selling it. We recently listed a business at a 40% lower price it was worth a year ago when the seller first approached us about selling it. He decided to try to sell to an employee and wasted 10 months pursuing a deal. The distraction of the sale, and resulting rumors and angst among employees, severely impacted the business during the protracted negotiations.

Conclusion

We understand that it is natural to ask “how much commission can you save by selling your business yourself?” While this may be a logical question, we respectfully suggest that it completely misses the critical issues in selling a business. We urge you instead to consider the pros and cons listed above, and then ask yourself the following:

1. How can you maximize the net proceeds on the sale or your business?
2. How can you maximize the probability of sale in your desired timeframe?
3. How can you minimize the risk that your business will be damaged during the sales process?
4. How can you minimize the expense, stress and distraction of selling your business, so you can stay focused on your business, family, activities you love and plans for your future?

We would love to meet with you and invite you to thoroughly investigate our company. We’re confident that after careful consideration, you will conclude the answers to each of the above four questions is to hire VR Mergers & Acquisitions to sell your business. Call anytime for a free, confidential consultation.

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