Company for Sale by Owner -- or Maybe Not

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Still, there's a vast range in quality among business brokers. Some try to make up for their own lack of contacts by relying on an advertising or a direct-mail-marketing blitz, which can be risky. George D. Shaw, a certified public accountant and partner in charge of corporate finance advisory services at Grant Thornton LLP in Boston, warns: "Business brokers may market a company so widely that the owner basically has no other option but to sell, whatever the price, because the competitors find out, the employees find out, and the company no longer is feasible as an independent business. That's the worst possible position to be in when you're thinking about selling."

To minimize such a risk, check out potential business brokers as carefully as you would a company hire. "It's very important to look for a broker who is heavily involved in your industry and has sold companies like yours in the past," advises John Sjoholm, a senior tax partner at Nykiel, Carlin & Co., an accounting firm in Schaumburg, Ill. "Most of our entrepreneurial clients have interviewed somewhere between three and seven brokers before deciding which one to hire."

The other option is to hire an investment banker, but investment banks generally are interested in handling only significant transactions. "Significant" can mean the sale of a large private company. It can also mean the sale of a small company in a niche that attracts interest either from professional investment groups or from larger strategic partners. Although investment bankers' thresholds of interest vary, many won't consider a deal with a price tag below $3 million. (For differences in the ways that business brokers and investment bankers get compensated, see "Money, Money, Money," below.)

In certain transactions, investment bankers can add key advantages. "When deals are more complicated and there are significant tax and payment issues to be addressed, an investment banker can help with the structure," says Mark G. Bosswick, a senior tax partner, lawyer, and CPA with David Berdon & Co. LLP, an accounting firm in New York City. That might be true particularly in cases in which multiple categories of stock or other financial instruments (such as hedging devices) are involved.

In some situations, all that a sale-oriented adviser adds is more expense and bureaucracy. In other situations, it's tough to imagine how a deal could get done well without an independent expert equipped with a Rolodex full of networking contacts.

Since bankers often possess better potential contacts than most brokers do, their participation can streamline the sales process. The most successful investment bankers specialize in a short list of industries, so it pays to shop around for one with a track record and networking base that are relevant to your company.

These days, Shaw of Grant Thornton adds, "it also makes sense to look for an investment banker with the capability to sell your company internationally, because that's a growing outlet for many entrepreneurial firms." Still, he warns, "there's a big difference between an investment banker who just has an international database of prospective leads and one that has real distribution capabilities overseas." (The latter includes international offices and close affiliations with foreign investment- or merchant-banking firms.) If you think your company could attract international interest, pay special attention to that issue when interviewing bankers.

Another way an investment banker might add value is simply by accepting your company as a client. "If a well-respected banker takes your company on, then that may be a form of credential, because it's a sign to the outside world that you've been vetted by an independent expert," comments Rubenstein. "But it can be a tough call to make because some companies don't need it. We've got a client right now," he says, "who's trying to assess whether hiring someone will add or detract value from the final deal. This is a case in which the seller knows how much his company is worth, and he already knows all the possible players who might want to buy it. He can pick up the phone himself or hire someone to do it. Will an investment banker's involvement raise the price enough to justify the fee? There's no easy answer. We're trying to figure it out right now."

One final point: whether you hire an investment banker or a business broker, the issue of Internet marketing probably will be raised either by you or by your adviser. Is promoting your company's sale online a helpful strategy?

Here again, the answer depends on your company's situation. If it's small, quirky, or otherwise likely a hard sell, you can only benefit from being marketed to the broadest possible audience (so long as your Web description manages to protect your confidentiality). Growing numbers of business brokers, especially those with national affiliations, are experimenting with this advertising medium; expect the trend to continue.

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