You Get What You Pay For: The Effectiveness of Business Brokers

While some business owners are still turning to business brokers for the sale of their business, the effectiveness of broker services are producing abysmal numbers, causing many experts to question the future of business brokers.

A recent article in the Wall Street Journal highlights the ineffectiveness of business brokers when trying to sell a business. According to BizBuySell, of the 31,856 listings in the third quarter this year, only 1,117 were sold. That amounts to a successful close rate of only 3.5 percent.

So why are business brokers still in business? Unfortunately we still compete against brokers because they typically offer a no-cost option for selling a business. However, the statistics prove that you get what you pay for. The weak efficacy of brokers is usually a sign of one of two issues:

1.     The business owner doesn’t have a realistic understanding of the market value of their business

2.     The market won’t support the business owner’s value expectations or needs based on earnings or results.

SDR’s theme of “Investment Banking…Reinvented” is designed to address these issues prior to putting a business up for sale. Here is how we address both of those issues:

1.     The first step is a properly prepared valuation. Armed with a valuation, business owners can confidently go to market and demand top-dollar for their business. Conversely, if valuation expectations don’t align with market value, the business owner avoids a long, drawn-out sale process that inevitably steals time and focus from the operation.

2.     We take a deep look into the company’s value drivers, focusing energy on driving earnings and taking a closer look at the business owner’s personal number.

While the perceived cost advantage of hiring a business broker may seem attractive, the results paint an entirely different picture.

The Wall Street Journal article can be found here.