8 costly mistakes founders make when considering a broker to sell their business

Whether to work with an M&A advisor or broker to sell your business is a big decision.

The right advisor can help you maximize the value of your business and guide you through a successful exit. The wrong one could cost you time, energy, and a whole lot of money.

After interviewing hundreds of founders who’ve sold their businesses, we’ve noticed several common mistakes entrepreneurs make when deciding whether to work with a broker, M&A advisor or investment bank — and choosing one to partner with.

Quick tip: We use the terms “M&A advisor” and “broker” interchangeably in this post. (We explain more on the differences between these professionals and investment bankers in bullet point three below.)

Here are the top pitfalls to avoid when considering a business broker or M&A advisor:

1. Dismissing business brokers entirely

Some founders quickly dismiss the idea of working with an M&A advisor or broker, often because they’ve heard horror stories about bad experiences. But this overlooks an important reality: while working with a bad broker can derail your sale, partnering with a good one could help you walk away with a drastically better deal.

A quality M&A advisor brings several advantages to the table:

• Experience navigating complex deals
• A network of qualified buyers
• The ability to create competition among buyers to drive up your sale price
• Expert guidance through due diligence and negotiations

Despite their fees — more on those below — working with the right M&A advisor is sometimes the best path. Many founders we’ve interviewed credit their partnership with their broker as helping them attract better offers, negotiate better terms, and navigate what can be a stressful sale experience.

2. Using an M&A advisor when it doesn’t make sense

On the flip side, some founders pursue broker relationships when it might not be the best route for their business.

If you’re selling for less than $500,000, you probably want to explore other options instead, such as:

• Using a marketplace
• Pitching potential buyers directly

At this size, most brokers would charge fees that take too big a cut of your proceeds. Plus, many established advisors won’t work with businesses that sell for less than $500,000 because the economics don’t work for their business model.

3. Looking for an investment banker, when an M&A advisor would be a better fit

While investment bankers, M&A advisors, and brokers all help founders sell their businesses, they serve different segments of the market.

Investment banks:

• Focus on larger deals, typically $20 million+
• Provide comprehensive support preparing the business for sale
• Offer extensive due diligence assistance
• Charge higher fees to match their service level

M&A advisors and brokers:

• Handle smaller deals, typically $500,000 – $20 million
• Provide varying levels of support, depending on the firm
• Often (but not always) work on a success-fee basis

Note that many M&A advisors prefer not to be called brokers due to negative associations with that term. Some advisors say they do more to prepare a business for sale than traditional brokers. But often the two terms are used interchangeably, as we’ve done in this post.

4. Not using an advisor because they already have a buyer

We often hear founders say, “I don’t need a broker because I already have an interested buyer.” While this might work out if the buyer has put an exceptional deal on the table, in most cases, you’ll benefit from having multiple interested parties.

Having more than one buyer gives you leverage. That competition is one of the best ways to drive up your sale price and negotiate more favorable terms.

So don’t make the mistake of just going with that first offer. Instead, look to add more buyers to the pool. You might be able to do that on your own! But if you can’t drum up additional offers alone, lean on an advisor who can tap into their network of qualified buyers.

5. Choosing a broker without relevant expertise

One of the most critical mistakes is working with a broker who doesn’t specialize in your type of business.

If you’re selling a SaaS company, for example, you want an advisor who has successfully sold other SaaS businesses — not the broker in your neighborhood who primarily deals with restaurants and retail shops.

This applies across industries. If you’re selling an e-commerce business, you want an advisor who has experience doing that. Same for selling an agency, a media business, a marketplace and other technology companies.

Some brokers say they’re “agnostic” and will take on any type of business as a client. Skip these advisors and go for the specialists instead.

This applies especially when it comes to digital vs. traditional businesses. If you’re selling an online or digital or tech-enabled business, you want a broker who has done that before, someone who understands the unique characteristics of that type of business, how it affects the value of the business, what buyers look for, and other nuances.

6. Assuming you’re too small for an M&A advisor

Small business owners are often told that their company is too small to attract a quality M&A advisor.

Yet if your company generates at least $300,000 in annual revenue, you can absolutely find a great advisor to help sell your business.

If anyone tells you differently, it’s likely because they have experience with larger deals. Don’t let this discourage you — there are plenty of reputable M&A advisors who want to work with smaller businesses.

7. Paying unnecessary upfront fees

While some specialty firms charge preparation fees before the sale, many quality M&A advisors work purely on commission, similar to real estate agents. They only get paid when your business sells.

This fee structure typically makes sense for companies selling for under $1 million. If you’re in that range, success-fee-only arrangements tend to be the best choice.

As the size of your deal increases, paying for additional preparation and support services might be worthwhile. It’s not unusual for advisory firms that specialize in a specific type of business — say agencies, for example — and sell companies beyond the $1 million mark to require up-front or retainer fees ahead of the sale.

And if you’re leaning on an investment bank for a sale that’s more than $20 million, you can expect to pay hefty advance fees, in part because the prep should be more extensive.

Understanding your options here — that some M&A advisors and brokers work on commission only, while others charge fees ahead of the sale plus a success fee — will set you on the right track.

8. Working with an unvetted broker

Perhaps the biggest mistake we see founders make is working with a business broker or M&A advisor who doesn’t come recommended.

Brokers on the whole have a poor reputation because there are unreliable players in the industry who either don’t have the best interest of the seller in mind or simply don’t have enough experience to be effective. Set yourself up for a life-changing sale by working with a high-quality partner.

This is why you should work only with M&A advisors recommended by founders who’ve successfully sold their business. Ask for references, and research the advisor’s track record with your type of business.

If you don’t have a network of founder friends to ask for recommendations, that’s where They Got Acquired can help.

We’ve interviewed hundreds of founders who’ve sold their businesses, so we know which M&A advisors, brokers and investment bankers you can trust with your sale.

Use this M&A advisor request form to tell us a little about your business, and we’ll match you with several vetted advisors who specialize in your type and size of company.

Founders who used M&A advisors to sell their business

Curious what it looks like to work with an M&A advisor?

Here are a few stories about founders who sold their company with the help of an M&A advisory firm, brokerage or investment bank:

• This accidental SaaS entrepreneur pulled off a graceful exit from a lifestyle business
• This company solved a common challenge — choosing a business name — and sold for 8 figures
• How she scaled a database to $5M ARR, sold for $25M and split the proceeds

More resources related to M&A advisors and brokers

Here are some other resources we offer on this topic:

• Should you work with a broker to sell your business? How to choose one and what to expect
• How much does an M&A broker or advisor charge? (Coming soon!)