Introduction
When considering the sale of your business, one of the first questions that often arises is: "Should I sell it myself or hire a business broker?" While the DIY approach might seem more economical at first glance, the reality is more complex. Let's break down the actual costs – both obvious and hidden – of both approaches.
The Time Investment: Your Most Valuation Asset
Selling a business is time-intensive. Here are some of the activities that consume the most time during a transaction:
Review and analysis of financial statements
Review and analysis of Operations, Marketing, HR, and Finance functions
Valuation of the business
Development of marketing materials
Creation of the Offering Memorandum (the document buyers will review)
Deployment of the marketing plan
Fielding, vetting, and responding to inbound leads
Setting up a Virtual Data Room for the sharing of confidential documents
Deal and structure negotiation
Due Diligence
Preparation for Closing
Closing and post-sale support
This certainly isn't an exhaustive list, but it captures a good portion of the activities needed to sell a business. On average, we tell our clients to expect it to take 9-12 months to sell a business. Sidenote: We reviewed the number of communications in a recent deal we worked on — here are some of the metrics, related to vetting and meeting with prospects:
Total # of Leads Generated: 138
Total # of Touch Points (Phone calls, emails, meetings): 1,305
For a business owner, this represents a significant opportunity cost. Let's examine what this means using real numbers. In this example, we'll use a fictitious owner named John:
John operates a custom cabinet business with $1 million in Revenue and $200,000 in Net Operating Income (NOI).
We'll assume his hourly rate is $100 which would be low, but will make our math easy in this example.
We'll assume a total time commitment of 10 hours per week over the course of 10 months must be dedicated to the sale of his business. (Total hours: 10 hours per week x 4 weeks per month x 10 months = 400 hours). This equates to $40,000 of his time if he were to sell the business himself.
If John uses a business broker, we'll ballpark the cost at 10% of the sale price. (In reality, this will vary based on business size, industry, and buyer pool).
Legal Fees: For the DIY approach, we'll assume attorney fees will be higher since the attorney will be assisting in the negotiation process instead of the business broker.
Potential Price Impact: Based on industry studies, broker-led sales typically achieve higher multiples resulting in a higher sale price.
Cost Factor | DIY Approach | Professional Broker |
Direct Fees | $0 | 10% of the sale price |
Legal Fees | $10,000 - $20,000 | $5,000 - $10,000 |
Marketing Expenses | $5,000 - $10,000 | Included |
Opportunity Cost | $40,000 | N/A |
Time Investment | 400 hours | N/A |
Potential Price Impact | Base price | +10-15% higher sale price |
Hidden Costs of the DIY Approach to Selling Your Business
1. Reduced Business Performance
When owners divide their attention between running their business and managing a business sale, business performance often suffers. This can lead to:
Decreased revenue
Lower profitability
Reduced business value
Decreased employee retention
2. Confidentiality Risks Without proper protocols the risk of disclosing too much information, or information at the wrong time to the wrong party can have devastating effects on a business:
Employees may learn about the sale prematurely
Competitors may leverage confidential information for their gain
Customers may lose confidence
3. Negotiation Disadvantages Business brokers negotiate the sale of businesses every day and are trained to drive multiple offers at the same time. An owner-led sale may result in:
Less leverage in negotiations
Limited access to qualified buyers
Reduced ability to create competitive bidding
The Broker Advantage: Value for Money
While a 10% broker commission might seem substantial, consider the benefits:
Professional marketing campaigns
Access to qualified buyer networks
Confidential handling of the sale process
Expert negotiation skills
Higher sale price potential
Maintained business performance during the sale
The Bottom Line: ROI Comparison
Let's head back to John's business — here's the comparison on ROI:
DIY Approach:
Sale price: $550,000 (assuming a 2.5X multiple - simplified formula)
Total costs: ~$70,000 (legal, marketing, opportunity cost)
Net proceeds: $480,000
Broker-led Approach:
Sale price: $600,000 (assuming a 3X multiple)
Broker fee: $60,000 (10%)
Other costs: $10,000 (legal)
Net proceeds: $530,000
Conclusion
While the DIY approach might appear less expensive initially, the combination of opportunity costs, potential lower sale price, and hidden expenses often makes professional broker services the more cost-effective choice.
The key is not just saving money on commissions but maximizing the final sale value while maintaining business performance throughout the process.
If you are interested in discussing the sale of your business, contact us here. Collaborative Commercial Business Brokers is licensed to sell businesses in Wisconsin and Illinois.
To your success,
Jason Huett
CEO | Business Broker
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