It has become increasingly possible to buy a business direct from the seller, without the use of a broker. Below we look at this option in a little more detail.
Finding a business to buy without a broker
Perhaps the most challenging part of buying a business is finding the right target. You may have a very clear picture of the business you are looking for, but actually identifying a business that ticks the boxes, which is actually for sale, can be a challenge.
There’s no doubt that a broker can help you find a suitable target and they are also extremely valuable in a large number of situations and scenarios - however, despite what many think, they are not essential to the process of buying a business.
There is an increasingly wide selection of avenues to take to find a target business to buy. Most entrepreneurs need help of some kind. Often it’s financial help and sometimes its expertise that they need. As a buyer, you may be able to offer the help needed in the form of a deal that could work for both the seller and yourself.
Keep your ear to the ground and put in the leg work and you could find a great opportunity without the need for a broker.
Networking
Calling people in your phone book and/or speaking to other business people is an effective way to find prospective businesses for sale. It’s likely that the next deal you make is closer than you think if you just make the right enquiries in the right places. Joining networking groups can be useful, as can speaking to people running businesses in your area about their own situation and those of the other business people they work with.
Social media and online platforms
LinkedIn has become an extremely useful tool for those looking to buy businesses. You may be able to reach out to business owners in your network or message business owners from anywhere in the country with the right questions. Explain what you want to buy and you may be surprised to find that lots of business owners and entrepreneurs are looking for partners, buyers or extra financing, which are all situations that could lead to deal opportunities.
As well as social and professional networking, there are specialist online platforms that allow you to look for businesses for sale without the need for a broker. You can even place an Business Wanted advert with as much detailed information as possible about the type of business you are looking to buy.
Here’s an example of some buyers who did just this, and to great effect.
Case Study
Richard Preston and his friend and business partner Peter Dodd were looking for an engineering business to buy. The pair met with dozens of brokers and business sellers with very little luck. They found that using a broker wasn’t working for them as the presence of a middleman seemed to be an obstacle to them gaining an insight into the seller’s motivations.
It was at this point that they decided to place a Business Wanted advert with the Business Sale Report, which enabled them to more effectively seek out the exact business they were looking for. This was a “game changer”, according to Preston. He explained that the advert allowed them to start conversations with people who were actively looking to sell and who knew their criterion from the outset. There was also a better opportunity to negotiate the right price.
Preston explained: “You need to find a business for sale in the seller’s head, which is not necessarily the same as that of the brokers.
“With brokers, there is already a price tag attached to it and they’re normally more interested in making the quickest deal. Whereas with individual sellers, there are no mark-up fees or percentages taken off, so you can deal with the individuals themselves at the heart of the business rather than with a third party,” he continued.
Soon after placing the advert, the pair were contacted by NDT Equipment Supplies Limited and the two parties began negotiations straight away. The deal was completed on a ‘sold as seen’ agreement and due diligence was kept to a minimum. This, again, is something that both parties were able to negotiate and agree without the help of a broker.
Preston and Dodd were able to complete the deal within days, after personally meeting the sellers and hashing out the last aspects of the deal. It seems in some situations, the presence of a broker is not just unnecessary buy can actually be a hindrance.
But that’s not to say that brokers are obsolete - far from it.
When are brokers useful?
Brokers are still extremely useful, and even essential, in many situations. Brokers can help you to find a suitable business, particularly if your requirements are pretty broad. They can also help you to get in touch with sellers who are not advertising through online platforms, if you lack the wherewithal to do it yourself.
Of course many sellers engage brokers on an exclusive basis to sell their business. You therefore have ready vendors who have already made the commitment to part ways with their enterprise. It’s often a fairly simple exercise to skim through brokers’ listings, or search their databases. Quite useful when the broker specialises in a particular industry, as you’ll be able to trawl through, say a list of nurseries for sale, in one place.
Once you embark upon an acquisition, if the deal is complex or particularly valuable, a broker can be essential in helping to offer expertise and advice. But beware, in many cases the broker is working for the seller - he/she is not really on your side! The broker wants to get the deal done for the seller and collect the commission.
It is a fact that many brokers lack specialist industry knowledge. Also - at some point you will want to speak to the seller, who will often be better placed to answer your questions than a broker will be.
Getting the deal done without a broker
Buying a business direct from the seller without a broker can be done. Once you have found the business you want to buy, there is no reason you can’t go through the usual deal-making process while saving yourself the fees involved with using a middleman.
Start with a desk analysis and by all means seek the help of an accountancy expert to ensure you are fully aware of, and understand, the target business’s financial position.
When it comes to putting a deal together, it makes sense to get professional legal advice. You will also need to ensure you keep lines of communication open with the seller and they will need to be willing to put the extra time and effort into answering all your questions, due to the lack of a broker to do the legwork.
At the end of the day, no one knows a business like the seller and they are well positioned to negotiate a deal for the sale of their own business. As a buyer, you need to look out for your own interests and be confident that you are able to secure a fair deal without the help of a broker. With plenty of cooperation, communication and understanding from both parties, you can come to a deal that pleases everyone and save yourself a significant broker fee.
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