Industry
Part of Four things a business broker actually does, and where incentives stop matching yours
Five intermediary arrangements in a small business sale, and whose interest each serves
Five ways to arrange the intermediary in a small business sale, from exclusive broker engagements to a franchisor resale desk, and whose interest each serves.
There are five ways to arrange the intermediary question in a small-business sale. Each puts a different person between you and the other side.
This comparison names the firms that work each way, so you can check them rather than guess. The columns that matter are who pays, whose interest sits closest to the deal, and how you get out.
What to take away
- The arrangements differ mainly in whose interest sits in the middle of the deal. Read that column first.
- No arrangement removes the need for your own accountant and lawyer. A sale of this size warrants an intermediary, an accountant and a lawyer; the table only varies the first.
- The arrangement that suits a seller with one known buyer is not the one that suits a seller who has to find one.
- Fees are quoted as percentages of completion price, so the arithmetic below uses your own figures, not ours.
- Ask the intermediary which of these five they are, in writing, before you sign.
The five arrangements compared
Seller's intermediary, exclusive
- Named examples
- Sunbelt Business Brokers, Murphy Business & Financial
- Who pays
- Seller, on completion
- Whose interest is served
- Seller's, within the fee incentive
- Competitive tension
- Created by a run process
- Confidentiality
- Held by one process, one register
- Exit
- Term, termination clause, tail
Seller's intermediary, non-exclusive
- Named examples
- Business brokers listed on BizBuySell, Transworld Business Advisors
- Who pays
- Seller, whichever channel completes
- Whose interest is served
- Seller's, but attention follows the likeliest channel
- Competitive tension
- Weakened; channels compete with each other rather than buyers
- Confidentiality
- Held by several; leaks harder to trace
- Exit
- Easier, but tails from each channel can overlap
No intermediary
- Named examples
- Direct approach to a known buyer
- Who pays
- Nobody
- Whose interest is served
- Each side its own
- Competitive tension
- Only if the seller creates it alone
- Confidentiality
- Held by the owner while running the business
- Exit
- Not applicable
Buyer's own adviser
- Named examples
- Buy-side search firms such as Water Street Partners
- Who pays
- Buyer
- Whose interest is served
- Buyer's
- Competitive tension
- The buyer works to reduce it
- Confidentiality
- Buyer-side, of the buyer's interest
- Exit
- Buyer's engagement letter
One intermediary for both
- Named examples
- Franchise resale desks, e.g. a franchisor's transfer team
- Who pays
- One side, or split, by agreement
- Whose interest is served
- Neither fully; disclosure required
- Competitive tension
- Little; the intermediary needs both sides to agree
- Confidentiality
- Held by one party with access to both files
- Exit
- Consent of both sides, in practice
The middle row is the one to read twice. In every arrangement someone's interest sits closest to the deal, and it is not always yours.
Exclusive seller's intermediary
When it was right. An owner with a business that ran without them, no obvious buyer, and a need to keep the sale quiet from staff and customers. One process, one register of buyers, three offers to a deadline. The intermediary's four jobs were all needed and all done.
When it was wrong. An owner who already had a serious buyer, signed an exclusive engagement anyway, and paid a full fee on a sale the intermediary neither found nor much improved. Carving out the known buyer in the letter would have fixed it; nobody suggested it.
Non-exclusive seller's intermediary
When it was right. A small business in a sector with several specialist intermediaries, none of whom would give the engagement much attention alone. Listing with two, on clear non-overlapping terms, produced the coverage a single one would not.
When it was wrong. Two intermediaries marketing the same business with different packages and different prices. A buyer saw both, concluded the seller was disorganized or desperate, and offered accordingly. Two tails then applied to the same buyer.
No intermediary
When it was right. A sale to the business's own manager, price set by an agreed valuation, financed partly by the seller, with each side's lawyer and accountant doing the real work. There was no buyer to find and no confidentiality to hold. The fee would have bought nothing.
When it was wrong. An owner who marketed the business themselves to save a fee. Staff heard within weeks, the best of them left, and the buyers who came were unqualified, curious, or competitors reading the file.
The principle of caveat emptor cuts both ways: a seller running alone bears every mistake alone.
A seller who runs the process alone still has to fix the same problems, and the seller preparation checklist splits them four ways.
Buyer's own adviser
When it was right. From the buyer's side: a first-time buyer facing an experienced seller's intermediary engaged their own adviser on a retainer. The adviser's income did not depend on completing, and twice told the buyer to walk away. The third deal completed.
When it was wrong. A buyer's adviser paid on completion, on the headline, who pushed a structure heavy on deferred payments because the fee was earned at closing either way. The structure suited the fee, not the buyer.
One intermediary for both sides
When it was right. A transfer inside a franchise system, where the franchisor's desk handled both parties, the price range was set by the system's own history, and both sides understood exactly whom the desk worked for.
When it was wrong. An intermediary who brought a buy-side client to a sell-side engagement without saying so. The conflict was discovered late, in the middle of diligence, and the dispute over the fee outlasted the sale. Any dispute resolution clause in the engagement letter is worth reading before you sign for this reason alone.
Choosing between them
Ask three questions in order. Is there a buyer, and is that buyer firm? If yes, the third arrangement, with strong professionals on each side, may suffice.
Choosing an Arrangement
Is there a firm buyer?
No intermediary, strong professionals
Can business survive disclosure?
If no, can the business survive staff and customers knowing it is for sale? If not, the first arrangement, run properly, alone holds confidentiality. If it can, and the business is small, the second may cover what the first cannot.
The fourth is the buyer's question, not yours. The fifth should be entered only with full disclosure and your own lawyer reading the terms. Whatever the arrangement, the work of the preparation year is the same, because no intermediary can sell a record that does not exist.
