How to Sell a Small Business Without a Broker (Bypass M&A Brokers) 

A lot of small business owners ask if it’s necessary to go through a broker when they are getting ready to sell their business. The short answer is no.

With that said, there are some things you should know before attempting to do it on your own.

In this post, I’ll walk through how to sell a small business without a broker, step-by-step. There is no ‘one-size fits all’ option, but my goal here is to provide you with the knowledge to confidently make the best decision for your situation.

Let’s dive in.

Pros and Cons of Using a Business Broker

Before we get into the sale process strategies, let’s take a minute to cover the advantages and disadvantages of using business brokers.

As a business owner, I recommend going in eyes wide open and assessing your options before deciding which direction to go.

Advantages of Not Using a Broker

Cost Savings

The most significant advantage of selling a business independently is that the owner can save on broker fees and commissions.

This can be particularly beneficial for small business owners who are looking to maximize the value of their business and may not have the funds to pay a broker’s fees.

The exact commission rate will vary depending on the broker and the specifics of the sale, but it is typically a percentage of the sale price. Broker commissions typically vary depending on the size of the business (referred to as the Lehman formula):

• 10% on the first million in sale price
• 8% on the second million
• 6% on the third million 
• 4% on the fourth million
• 2% on the remaining balance

This adds up quickly: if you sell your company for $5M, this means you’re on the hook for a $300K broker commission.

Control

When you sell a business without a broker, you have more control over the process. You can take a more active role and set the terms of the sale, negotiate directly with buyers, and make decisions about how to market and promote the business.

This can allow you to be more involved in the sale and give you a greater sense of ownership over the process. As a bonus, you’ll likely build a stronger relationship with the new buyer and have a better understanding of their motivations.

Confidentiality

Selling a business can be a sensitive process, and you may not want to disclose certain information to a broker. By selling the business privately, you can maintain more control over who has access to sensitive information about the business.

It also allows you to manage the sale process on your own timeline, as opposed to having to adhere to the timeline set by a broker.

Disadvantages of Not Using a Broker

Access to Buyers

If you move forward without a broker, you may have a harder time finding a potential buyer for your business.

You might not have access to the same network of prospective buyers that a broker would typically have. This can ultimately make it more difficult to find the right buyer.

Lack of expertise

A good business broker will be experienced in the end to end deal process and can help you navigate the legal and logistical aspects of selling a business, which can be complex and time-consuming.

The owner will need to research buyers, manage negotiations, and handle other administrative tasks related to selling the business. This can be particularly challenging for small business owners who may not have the time or expertise to handle the complexities of the sale process.

Emotional challenges

Selling a business can be an emotional process, especially if you have been closely involved in the business for a long time. A broker can provide a degree of detachment and objectivity that can be helpful in navigating the sale process.

If you sell the business without a broker, you may need to find other ways to cope with the emotional challenges of the process.

Value of Business Brokers for Small Business Owners 

At the end of the day, a business broker acts as an intermediary and facilitates the buying and selling of a business between the prospective buyer and the business owner. 

When you hire a business broker, you’re effectively paying for the knowledge they’ve gained over similar deals in the past. This experience can help you work through the nuances of the deal, ensure you get a fair price, and bring in an array of contacts.

A good broker will have a strong track record are also experienced in negotiating deals and can help to ensure that your interests are protected throughout the process.

If you are confident in your ability to handle the sale on your own and are willing to put in the time and effort to do so, then selling your business without a broker can be a good option.

It can be a no-brainer if you already have interested buyers or are selling to a family member. On the other hand, if you are unsure about the process, then using a broker may be the better choice.

Regardless of what you choose, I strongly recommend having M&A advisors on your deal team, (particularly a strong lawyer and accountant).

How to Sell a Small Business Without a Broker (9 Steps)

1. Focus on Business Value Drivers
2. Exit Planning
3. Evaluate What Your Business is Worth
4. Create a Confidential Information Memorandum (CIM)
5. Build Your M&A Team
6. Find Potential Buyers
7. LOI Process
8. Work through Due Diligence
9. Negotiation and Closing

1. Focus on Business Value Drivers

Before starting the process to sell your small business, I recommend focusing on value drivers for your business.

The value of your business can be greatly impacted by factors such as the strength of your customer base, the quality of your management team and processes, and industry trends. By focusing on these value drivers, you can maximize the sale price of your business.

I recommend focusing on the below categories – I’ve created a deep dive on each in this post.

• Owner Not Critical in Day to Day Operations
• Develop a World Class Management Team
• Reliable and Consistent KPIs
• Well Defined Sales Process: Repeatable Way to Acquire Customers
• Eliminate Single Channel Dependence (Marketing Plans)
• High Customer Lifetime Value with Low Customer Churn
• Create Recurring Revenue
• Obsess over Financial Statement Accuracy
• Thorough Documentation and Standard Operating Procedures
• Institute a Quarterly Documentation Day
• Specialize (Don’t Generalize)
• Strong Management / Key Employee Succession Plan 
• Develop a Compelling Growth Story
• Supplier Diversification
• Keep Your Eye on the Ball: Look to Boost Profits
• Prepare Brand Equity and Intellectual Property
• Reduce Customer Concentration Issues
• Sustainable Competitive Advantage

2. Exit Planning

The next step is to create an exit strategy for your business.

One of the biggest mistakes business owners make is shortchanging this process, and it often leads to regret and a reduced sales price.

• Reassess Business Structure: Have your attorney review your business entity and all related documentation. Getting your business structure in order facilitate an exit will save you a lot of headaches later on. Think about building your business structure to isolate and protect against liability.

• Settle Any Existing Lawsuits and Claims: Make sure that all outstanding legal matters are settled far in advance of any negotiations to sell your business.

• Get Your Company’s Financial Records Audited: Your financial statements are the foundation that your business valuation is built on, so it’s important to get them right. This means having a complete and accurate picture of your revenue, expenses, assets, and liabilities. Prospective buyers will typically be very interested in the last 12-24 months of financial data, tax returns, balance sheet, and profit and loss statements.

• Ensure Intellectual Property (IP) is Registered: Make sure these are registered to help protect them in the event of a sale. When you register the IP, you get additional statutory rights that can be enforced in court in the event of any infringement.

• Key Performance Indicators

If you don’t already have well-established KPIs, take the time to create and track core metrics for the following:

• Maximize Profits

The valuation of your company is based on your profits, so now is the time to make sure you’re driving up profits as much as possible.

In the 2-3 years leading up to an exit, business sellers should optimize for higher profits to help increase your valuation. This includes everything from cutting non-essential expenses to investing in profit making assets.

3. Evaluate What Your Business is Worth

As you move forward in the sale process, you’ll need to decide what a reasonable asking price should be.

There are a few different ways to determine the value of your business and come up with your listing price:

1. One common valuation method for small businesses is using a multiple of earnings. Typically this is done using pre-tax earnings (either SDE or EBITDA), compared against industry benchmarks.
2. Another way is to compare your business to similar businesses that have recently been sold and use that information to estimate your business’s value.
3. You could also consult with a professional business appraiser who can provide a more in-depth analysis of your business’s worth.

4. Create a Confidential Information Memorandum (CIM)

A Confidential Information Memorandum (CIM) is a document that provides detailed information about a business for the purpose of attracting potential buyers.

Here are some steps you can follow to create a CIM for your business:

1. Gather relevant information: This includes financial information such as income statements, balance sheets, and cash flow statements, as well as information about your products or services, market position, competitors, and growth potential.
2. Organize the information: A typical CIM includes an executive summary, an overview of the business, a description of the products or services, a market analysis, financial information, and a description of the management team.
3. Write the CIM: Start with the executive summary, which should provide a brief overview of the business and its key selling points. Then, provide a more detailed description of the business, including its products or services, market position, and growth potential. Next, include a market analysis that discusses the industry, competitors, and target market. Finally, include financial information such as income statements, balance sheets, and cash flow statements.
4. Review and revise: Once you’ve written the CIM, review it carefully to ensure that it is accurate, complete, and well-organized. Consider having someone else review it as well to get a fresh perspective. Make any necessary revisions to ensure that the CIM presents a clear and compelling case for the value of your business.
5. Protect confidential information: As the name suggests, a CIM is meant to be confidential, so be sure to protect any sensitive information that you include in the document. This may involve redacting certain information or requiring potential buyers to sign a confidentiality agreement before they are given access to the CIM.

5. Build Your M&A Team

Even if you go without a broker, in my view there are two non-negotiable people you’ll need on your M&A team: a lawyer and accountant.

Selling is a complex process and having these professionals in your corner will keep the process moving swiftly, not to mention work through tax implications and a variety of legal documents.

Before moving to the next stages, I recommend having your M&A lawyer create a non disclosure agreement and have each potential buyer sign it before you share any sensitive detail.

If you are leaning towards more of a DIY approach, you can usually get free advice from business owners that have went through this before (SCORE is a great resource worth looking into).

6. Find Potential Buyers

At this point, you now have all the information you need to create a giant pool of prospective buyers for your business. 

Most business owners strictly rely on business sale websites, but I’d prefer you take a more proactive process to find an interested buyer.

This is a critical step – most business owners don’t promote their business nearly enough.

Remember that this a volume game: to get the best price, you’ll want to cast out a wide net of potential buyers and go beyond a listing website. More options gives you leverage and a higher likelihood of getting what you want.

While you can use your professional network to get the word out, remember that closing your deal is your job. Even if you do decide to work with a broker, don’t abdicate this process completely.

Be strategic about who you promote your business to: focus on buyers who will pay the most for your business. This means targeting strategic buyers, private equity firms, and larger businesses in your industry.

Many buyers in the same industry will be targeting a strategic acquisition, so think about they will benefit if their company buys you (entering a new market, acquiring valuable IP, products etc.)?

How do you want to position your business to these potential buyers? Start cultivating these relationships early, as they can plant the seed for a future offer.

Strategic Buyers vs. Financial Buyers

There are two main types of buyers: strategic and financial.

Each type of buyer has different motivations and objectives. As a result, they’ll likely approach the sale very differently. It’s important to understand the difference between the two types of buyers so you can choose the one best suited for your unique situation.

A strategic buyer is usually a company that’s in the same industry as the business being sold.

A strategic buyer is a company that acquires another company primarily in order to expand its own capabilities. They’re likely interested in buying the business for reasons like:

1. Expanding their operations into new markets
2. Growing their customer base
3. Gaining access to new technology or products

On the other hand, a financial buyer is usually an investment firm or venture capital firm. They’re oriented with a purely financial mindset – they’re interested in buying the business in order to make a profit by selling it later at a higher price.

• Which companies sell to the same customers you do?
• Which companies can remove a bottleneck in your business?
• Which companies can earn more money than you can from your products / services?
• Which companies could benefit from your technology or capabilities?
• Which companies need the expertise of your employees?
• Which companies need your customer base?
• Which companies make money when you make money?
• Who has a problem you can fix?

7. LOI Process

Once you have identified some potential buyers and begun to cultivate relationships with them, it’s time to move on to the LOI (letter of intent) process.

The LOI is a document that lays out the key terms of an acquisition, such as purchase price, timeline for closing the deal, indemnification, and other items. It’s a nonbinding agreement that serves as the basis for negotiations between the two parties.

At this point in the process, it’s important to remember that negotiation is key. The LOI should be an outline of what you want from the sale of your business – don’t agree to anything until you’re sure that it serves your best interests.

You should also be aware of the different kinds of purchase agreements out there, such as asset purchases and stock purchases, so that you can negotiate effectively for what you want. And don’t forget to get a lawyer involved during the entire process to make sure that you’re getting the best deal possible.

After the LOI is signed, it’s time to move on to due diligence and finalizing the sale of your business.

Qualifying Possible Buyers

As you approach potential buyers, you’ll also want to assess them – qualify them and ensure they would be a good fit. Here are some of the things you should be thinking about:

• Are they a strategic buyer?
• What is their industry experience?
• Are they capable of running the business?
• Do they have the financial resources to complete the acquisition? One way to do this is to ask for a personal financial statement.
• Is the company a good fit with their current business operations?
• Are they likely to be approved for funding by their lender?
• Does the buyer have reasonable timeframe expectations? Are they prepared to purchase immediately or are they looking to make a transaction next year?

8. Work through Due Diligence

The due diligence period covers a phase of intense research and analysis that the buyer performs to ensure they are making a sound investment. It’s a great opportunity for both parties to get comfortable with each other, exchange information and come to an agreement on the terms of sale.

Here are some steps you can take to work through the due diligence phase:

1. Prepare for due diligence: As the seller, you should be proactive in preparing diligence by gathering all of the detailed documents and information that the buyer will need to evaluate the business. This may include bank statements, financial statements (income statement etc.), contracts, leases, and employee records.
2. Understand the buyer’s objectives: It is important to understand what the buyer is looking for and what their concerns are. This will help you anticipate the questions they will ask and the information they will need.
3. Communicate openly and transparently: During the due diligence phase, it is important to be open and transparent with the buyer. This means answering their questions honestly and providing them with the information they need to make an informed decision.
4. Be responsive: The due diligence process can be time-sensitive, so it is important to be responsive to the buyer’s requests for information and to meet any deadlines that have been set.
5. Address any issues: If the buyer raises any issues or concerns during the due diligence process, it is important to address them promptly and openly. This may involve providing additional information or making adjustments to the terms of the sale.

If you’re looking for additional information, you can check out my posts on the 3 types of due diligence:

• Legal
• Financial
• Commercial

9. Negotiation and Closing

Once due diligence is completed, it’s time to sign a binding agreement and close the deal. During this process, you’ll need to negotiate the final details of the sale, such as price and terms. It’s important to remember that negotiation is a two-way street and that both parties should come away feeling like they’ve gotten a fair deal.

At this stage, it’s important to be aware of your walk-away number – the lowest amount you’d be willing to accept for the sale. When setting this number, it’s important to consider the value of your business, the current market conditions, and other factors that may influence the deal.

Finally, no matter how much you prepare or how soundly you negotiate, it’s essential that your lawyer reviews the final agreement so that you’ve got a professional opinion on the terms of sale and can make sure your interests are fully protected.

Once you have finalized the agreement, it’s time to close the deal and transfer ownership of your business. From there you can start planning for your next step in life – whatever that may be!

Conclusion

I hope you found this post helpful and it helps to guide you through the business sale process, whether you use a business broker or not.

Business brokers can be helpful, but even if you decide to go it alone, having a good understanding of the process can go a long way.

With the right preparation and guidance, you can ensure a successful sale of your business. 

Good luck!