Fresh ways to find buyers
Business brokers and Internet sites present new opportunities for bringing buyers and sellers together.
(FSB Magazine) -- "As an entrepreneur, I always figure I can do everything myself," says Robert Smith, recounting his failed attempt to sell his public relations business. "Next time I'll turn it over to professionals and let them do their thing." Smith, 32, runs a PR firm in Loves Park, Ill., with six employees and some $500,000 in annual revenues. A few months ago he put out feelers to a handful of colleagues in his industry. He also approached a few larger firms, such as Hill & Knowlton. But no offers materialized. Now he has decided to build up his business before putting it back on the block.
This time Smith plans to explore several options: Internet sites, business brokers, and boutique investment banks. Scores of sites promise to make online deal connections. New ones seem to pop up almost weekly, and many are just plain sketchy. "Seller, beware," says Kevin Mulvaney, a professor at Babson College. "It's possible to drum up great leads on the Internet. But there is also a lot of junk out there."
Each year Mulvaney has his students evaluate these sites. The hands-down winner: BizBuySell.com, based in San Francisco. They also like BizQuest.com and Businessforsale.com. BizBuySell.com has the advantage of reach - it gets more than 20,000 hits a day. A business can advertise on the site for $55 a month, and for $100 a month the announcement is e-mailed to prospects. Potential buyers can search the site's 38,000 listings by size, geography, and type of business.
In 2005, Lee Dodd used BizBuySell.com to peddle Eat My Flames, which sells a kit that makes a car's exhaust pipe shoot fire. (No, it's not street legal, if you are curious.) Eat My Flames is profitable, with $175,000 in revenues, says Dodd, who lives in Wills Point, Texas. He sold it for $80,000 to a retiree in Wind Lake, Wis. It's the third sale that Dodd, a 27-year-old serial entrepreneur, has made using BizBuySell.com. "I always get a good variety of calls from all over the country," says Dodd. The downside of listing your business online? The sale is suddenly there for all to see, including your employees. Gulp!
Business brokers cost more than using the Web but can add a level of polish to the process. A good business broker will help a company plan for a sale by assembling key documents and addressing deficiencies in your business that a buyer might try to use to his advantage. Often brokers will prepare a deal book, highlighting a business's results and its management team. Unlike the Internet or word of mouth, a broker can be discreet, keeping a sale secret from a competitor or your employees. The best brokers are highly plugged in and should quickly generate legitimate prospects.
Most brokers are small operations with a distinctly regional focus. But there are a few national franchises, such as VR Business Brokers of Fort Lauderdale. It makes sense to work with one that concentrates on your industry, as opposed to a generalist. It's also a good idea to pick a broker associated with one of two professional organizations, the International Business Brokers Association or the Alliance of Merger & Acquisition Advisors. Most brokers will demand an exclusive listing, typically for six months. That's reasonable. If the broker can't get anything rolling in that time, you will want to move on. A broker shouldn't get paid unless you sell your business. A standard fee is 5% to 10% of the sale proceeds.
Do you think business brokers and deal connection Web sites are preferable to the do-it-yourself approach to selling a business? Tell us what you think.To write a note to the editor about this article, click here.