When business owners make the decision to put their businesses on the market, they are faced with a number of choices on how to handle the process. For many, working with a business broker is the solution, while others choose to go it alone – but what should you know before selling independently?
The business-for-sale marketplace is filled with options. Many business owners decide to market and sell their companies themselves rather than rely on professional brokers to do it for them. In fact, only around 10 percent of small businesses sell through brokers, while the rest make use of other transaction methods. Independent sellers are called FSBO (For-Sale-By-Owner) sellers, and they represent a significant portion of business owners who list establishments for sale.
The obvious question that arises from the FSBO method is whether it will continue to grow, or if more sellers will choose to rely on the expertise of professional business brokers. Although selling a company independently can be more complicated than many sellers anticipate, there are also signs that FSBO listings may have staying power.
Perhaps one of the most telling signs that FSBO listings may be around for a while is the reason they are gaining popularity in the first place. Contrary to popular belief, the primary influence behind the shift toward FSBO isn’t widespread dissatisfaction with traditional brokerage. Brokers continue to play a vital role in selling businesses in the U.S. Instead, many sellers are choosing to handle the sale themselves for the simple fact that there are more resources at their disposal than ever before.
Unlike previous generations, today’s business sellers can leverage the Internet and other technology-based resources to effectively market their companies and connect with potential buyers. Considering the sheer volume of “do it yourself” resources available to industrious entrepreneurs, it is safe to say that technology has tipped the scales for otherwise cautious sellers by providing an arsenal of selling tools at their fingertips.
Clearly, FSBO scenarios aren’t for everyone. A lot of sellers are uncomfortable handling the mechanics of the sale on their own and prefer to leave marketing, negotiation and other tasks to the professionals. After all, most traditional business brokers come with years of expertise and experience.
But for certain sellers, the prospect of a FSBO sale is a perfect fit. FSBO sellers believe that they are the best person to present their company to potential buyers since they are most familiar with its strengths and limitations. They enjoy talking about the business and feel equipped to generate interest in the marketplace.
Another reason FSBO is popular among small business sellers is the entrepreneurial spirit itself. Most small business owners built their companies through hard work and common sense. By applying that same ethic to the sale process, they hope to maximize the price and minimize the amount of time the company sits on the market.
However, it’s doubtful that many of these sellers would be willing to assume responsibility for the sale without the help of information technology. The Internet – and online business-for-sale Web sites in particular – have created a ready-made conduit for sellers to connect with potential buyers and exercise their entrepreneurial skills on their own behalf.
Advantages of a FSBO Sale
It’s commonly assumed that the primary advantage of FSBO is an economic one because FSBO sellers avoid paying a broker’s commission. Although the financial benefit is a clear incentive for many sellers, it’s not the only advantage of a FSBO listing.
FSBO sellers also enjoy the ability to stay intimately connected to the selling process. For a lot of sellers, that’s a huge advantage because it keeps them in touch with buyer interest and helps them gauge their expectations against marketplace realities. Business owners with a “hands-on” leadership style might find it difficult to reproduce that level of involvement in a brokered sale.
Online resources enhance this benefit by giving sellers 24/7 access to useful information and other critical features. BizBuySell.com is one example. In addition to offering a comprehensive listing service, BizBuySell gives sellers a range of services designed to keep them connected with the changing conditions of the marketplace. Valuation resources, advanced search and multiple listing options equip FSBO sellers with the tools they need to stay informed and connected to their sale in real time.
The Risks of FSBO Selling
Sellers who choose to pursue an FSBO approach should be aware of the risks involved. First and foremost, it’s important to understand that going alone is not the same thing as going in blind. Make no mistake about it – a business sale is a specialized transaction and it requires a certain amount of expertise to be done effectively. Even though there are plenty of resources out there to help FSBO sellers navigate the process, owners need to actively seek out those resources and religiously integrate them into their sale strategy. In addition to using online resources, FSBO sellers might find it beneficial to turn to lawyers and accountants for reassurance and confidence throughout a transaction.
Another significant risk of FSBO selling is the possibility that sellers will become too emotionally involved in the deal. Brokers create an often much-needed buffer between the buyer and the seller. When negotiations get tense, the seller relies on the broker to offer an objective perspective. Because there is no broker in a FSBO sale, the line between owner and seller inevitably gets blurred. Unless the seller has a trusted friend who can offer an objective perspective, the deal could rapidly deteriorate into an emotionally-charged fiasco.
The Future FSBO
Although the long-term outlook for the FSBO practice has yet to be determined, it is hard to deny its potential. Both buyers and sellers are unquestionably disposed to use the method’s most valuable resource – the Internet. Much of FSBO’s success will hinge on the willingness of small business sellers to embrace new online opportunities and to employ technological resources to their advantage.
Since not all sellers are comfortable selling their businesses themselves, brokers will continue to play an important role in the marketplace. But for sellers who insist on carrying their entrepreneurial instincts into the selling arena, the FSBO method will likely offer an effective alternative well into the foreseeable future.
Check back tomorrow for Part 3 of 7: Four keys to selling your business online
About the Author
Mike Handelsman is General Manager for BizBuySell, the Internet’s largest business for sale marketplace. Since 1995, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell lists over 50,000 businesses – spanning 80 countries – for sale at any time, with over 4,500 added or updated each month. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry’s leading franchise directories. Please visit www.bizbuysell.com.