Many times the answer is “No.” If the buyer is a friend or family member or even a trusted employee and the selling price and terms are mutually agreed upon, then the sale may be structured and overseen by a closing attorney who is acceptable to both parties. There is no legal requirement that a business must be sold through an intermediary, and many thousands of businesses are sold every year without one.
A good business brokerage firm may still be able to assist in deals with a known buyer in a few different ways…
- If the brokerage firm has a certified business valuation specialist on board, then a business appraisal/valuation can be performed to determine the fair market value of the business. The firm may act as a neutral 3rd party and many times the seller and buyer will share in the cost of the valuation. Note that the valuation is assuming the transaction is at “arm’s length” so in the cases where family members are involved and a “known” discount will be granted by the seller the purchase price may end of significantly lower than the FMV, but at least both parties will understand the magnitude of the discount that will be realized.
- I have been approached many times to perform a Broker’s opinion of Value (BOV) in such a situation; however, I think that this is not the right tool for the job. A BOV is a great tool for determining an asking price when the seller wishes to test the open market. In the end, the market will determine the price. Many sellers would like to “save a few bucks” with a BOV in lieu of a certified valuation but the fact is the appraiser will do a more thorough job and use appraisal industry standards to create a higher level of confidence in the report than with a BOV.
- A qualified business broker can also assist the parties in identifying potential sources of financing for the buyer to minimize or even eliminate the need for seller financing. This may involve creating an informative package to present to the lending community which outlines the history, operations and financials of the business.
- Additionally, a qualified business broker can assist the parties in structuring the terms of the deal to maximize the seller’s net proceeds, which in the end can be more important to the seller than the purchase price.
- An experienced business broker can also serve as a “quarterback” during time consuming negotiations and in dealing with both parties key advisors thus freeing the seller to stay focused on running the business and maintaining confidentiality in order to minimize the risk that key employees, customers and suppliers will learn that the company is being sold.
Often times transactions can get derailed at various steps in the process when one or both parties have reservations or doubts about finalizing the deal. An experienced business broker can often find ways to get the get the deal back on track and ultimately to the finish line!