Are business transfer agents worth the money paid to them?

30/04/2010 by info.

The biggest competitor to a business transfer agent is the client. The seller of a business often incorrectly thinks that they can save money by selling a business privately without the aid of an agent, however the seller of that business 99% of the time is worse off. Why?

Well let us assume that an agent would have charged £4,750 to sell a business worth £95,000. This fee covers the cost of writing the sales memorandum, advertising the business, answering enquiries, qualifying the buyer, arranging meetings, answering queries, negotiating the selling price and writing head terms. In addition the agent is there to act as a go between the parties solicitors and accountants, have I missed anything out? Probably.

So let us break down the costs involved in selling a business and undertaking these duties.

Advertising a business on Daltons.com and businessesforsale.com for a 2 months period is c. £200, and an advert in Daltons Weekly would cost £50 a week. Often businesses do not sell immediately so up to a years advertising is necessary. Advertising costs of c £1,000 are not unusual.

A seller of a business should also include within his “costs”, his hourly rate. This could quite easily be £100 an hour, the seller’s effective earning rate.

However, a seller of a business often does not appreciate that work is happening behind the scenes and believes that nothing is happening, as he is not informed of every aspect of the work undertaken. It is not unreasonable for the seller without the aid of an agent to spend 30/40 hours time dealing with these enquires. This “cost” represents some £4,000 in lost earning time.

So the true cost of not employing an agent can be much more than the agent’s fee, and we have not touched upon the value of the agents expertise and negotiating skills meaning that often they can obtain a higher price for the business than the owner. Nor in fact the loss of confidentiality as a seller may have to disclose the name of the business at a much earlier stage of his process.

So if a seller thinks that he can save money by selling his business personally perhaps he should look at the true cost of doing so and recognise the true benefit of employing a good business transfer agent.

Posted in Selling Your Business, Business transfer agents, General | 7 Comments »