Selling through a broker or privately: how to decide, and what to check

Whether you sell through a business broker or privately shapes what the sale costs and how much of the work you do yourself. This guide covers what a broker does and does not do, how brokers are paid, the agency agreement, licensing and what selling privately involves. For the whole process, see how to sell a business.

What a business broker does

business.gov.au says brokers help buy and sell businesses, and can help you understand your legal obligations and advise on profitability and industry trends. Services vary, but can include:

• Appraisal. An opinion of the price the business could achieve. See how small businesses are valued.
• Marketing. Writing and placing the listing, and preparing an information pack for serious buyers.
• Buyer screening. Checking each buyer's experience, funds and timing before details are released.
• Confidentiality. Managing confidentiality agreements and releasing information in stages. See keeping a business sale confidential.
• Negotiation. Presenting offers and working through price and terms.
• Coordination. Working with your accountant, solicitor and the buyer's advisers through to settlement.

What a broker does not do

• Act for the buyer. A broker you appoint acts for you, the seller.
• Replace your solicitor or accountant. business.gov.au suggests having a lawyer draw up the sale contract, and tax is a question for your accountant. See legal and tax steps in a business sale.
• Stand behind your figures. business.gov.au says the information you give must be accurate and true and that you must not engage in misleading or deceptive behaviour, so check what a broker publishes for you.

How brokers are paid

Brokers are usually paid a commission on the sale price, and some also charge upfront marketing fees that may be payable whether or not the business sells. Rates vary, so ask for the total in dollars at your asking price and at a lower price you might accept.

In Victoria, Consumer Affairs Victoria says an agent cannot claim commission or expenses for a property or business transaction unless they have a written authority that meets the Estate Agents Act 1980, give you a signed copy, and tell you before you sign that commission and expenses are negotiable. The authority must state them as a dollar amount, or as a percentage with a dollar example. Other states have their own rules.

The agency agreement

The agency agreement (called an authority in some states) appoints the broker. Have your solicitor read it before you sign, and check:

• Term. How long it runs, and whether it continues automatically.
• Exclusivity. Under a sole or exclusive agency, one broker acts for the term, and depending on the wording you may owe commission even if you find the buyer. Under an open listing, you can appoint several agents or sell yourself, and normally only the agent who introduces the buyer is paid.
• What triggers commission. Exchange, settlement or another event, and whether it is owed if a buyer introduced during the term buys later, and for how long.
• Termination. How either side can end it, the notice required and any cost of ending early.
• Marketing costs. What is included, what is extra and whether anything is refunded if the business does not sell.
• Marketing material. Who owns the photos, text and information pack if you change brokers or sell yourself.

Licensing and credentials

business.gov.au suggests checking a broker's professional credentials before you use their services. Licensing is set by each state and territory, and the rules differ.

• New South Wales. NSW Fair Trading says business agent functions now sit within a real estate agent licence, and that you need a real estate agent licence, or one restricted to business agent functions, to sell, buy or negotiate the sale of a business or professional practice. Licences can be checked on the NSW public register.
• Victoria. Consumer Affairs Victoria says an estate agent's role includes arranging, appraising and negotiating the sale of businesses, which requires an estate agent's licence or employment by a licensed agent as an agent's representative. It says to always confirm the agent is licensed, using its public register.
• Elsewhere. Check with the fair trading or consumer affairs body in your state or territory.

A licence does not tell you how many businesses like yours a broker has sold, so ask.

Selling privately

Selling privately, you find the buyer and run the sale, taking on:

• Valuation. A price you can explain, with your accountant's help. What's my business worth? gives a starting point.
• The listing and information pack. Writing them without identifying details.
• Enquiries and screening. Replying promptly, using an NDA from your solicitor, and checking each buyer's experience, funds and timing.
• Site visits. Showing the business without disrupting trade or alerting staff.
• Negotiation. Dealing with buyers directly and holding your position on price and terms.

Costs you avoid and costs you still pay. You avoid commission and broker marketing fees. You still pay your accountant for the figures and tax advice, your solicitor for the NDA and contract, and any fees to list or advertise.

State disclosure rules. business.gov.au suggests checking whether your state or territory has laws on what information you must give buyers. In Victoria, Consumer Affairs Victoria says a vendor's statement (a section 52 statement), usually completed by the seller and their accountant, is required for the sale of a small business at a price up to $450,000, and that if it is not provided the contract can be voided.

How to decide

Neither route suits every sale. Weigh these:

• Time. A sale means calls, visits and paperwork on top of running the business. A broker takes on much of it; selling privately, you do.
• Confidentiality. A broker can answer enquiries without revealing the seller until an NDA is signed. Selling privately, buyers deal with you directly, which is harder to keep quiet in a small community, though you decide who knows.
• Experience. If you have sold a business before or negotiate for a living, you may be comfortable running the sale. If not, a broker's experience may be worth the fee.
• Size and complexity. Several sites, many staff, a franchise or licences that must transfer make a sale more involved. A small, simple business can be easier to sell yourself.
• A buyer you may know. business.gov.au lists current or former employees and customers among possible buyers, and a supplier or competitor may be interested too. Approach a competitor only after an NDA, and use a solicitor and contract even with someone you know.

A hybrid approach

• Sell privately first. Approach people you know, or list the business yourself, for a set period, then appoint a broker if needed. Keep a record of everyone who enquired.
• Limit the term. A shorter agreement, or an open listing, limits how long you are committed.
• Exclude buyers you already know. Ask whether the agreement can name them as excluded from commission.

Listing on BizExchange

Owners and brokers can both list a business on BizExchange; see pricing for owner plans. Broker listings show "Broker listing" and "Listed by" with the broker's name; owner listings show "Owner listing". The enquiry form goes straight to the seller or listing agent, and buyers can ask to sign an NDA first.

Questions to ask a broker before you sign

• How many businesses like mine, in this area and price range, have you sold?
• What is your licence number, and which state or territory issued it?
• What is the total cost in dollars at my asking price, and what do I pay if the business does not sell?
• When is commission payable, and does it apply to a buyer you introduced who buys after the agreement ends?
• Is this a sole agency or an open listing, how long does it run, and how can I end it?
• Can buyers I already know be excluded, and who owns the marketing material?
• How will you keep the sale confidential and screen buyers?
• Will any of the commission be shared with someone outside your agency? In Victoria, Consumer Affairs Victoria says the agent must tell you before you sign.