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The Pros And Cons Of Selling Privately

As we start 2021, the website investing space is larger, and growing faster than ever.

One of the ways that this is most apparent is in the growing number of places you can buy and sell a business. Equally, the amount of private deals we see, hear about, or are involved in is on the rise.

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Does Selling Privately Leave You With More…or Less Money In The End?

I’d been meaning to cover the topic of selling a site privately for some time, when Greg Elfrink over at EmpireFlippers released this video on the same topic

Naturally as a broker, Greg’s angle was that you actually make more money selling through a broker, even after taking into account their fees.

He made a lot of good points, which I’ll include in this article, and I largely agreed with him. 

However, as someone who’s not a broker,  I decided to go ahead with my own article, so you can see a “neutral” opinion on the matter.

Actually, as someone who DOES buy and sell privately, and I may want to buy your business privately, I should point out that I too may be biased, and you should consider this when reading.

However, I’m not in the “I only want to buy a business privately because it’s cheaper” camp. I’m also not in the “I only sell privately because brokers are a bunch of thieves taking a commission just for sending an email” camp. Both camps exist.

I’ve bought privately, I’ve bought through brokers, I’ve sold privately, I’ve sold through brokers.

Here’s a snapshot of my Escrow account:

Half of these transactions, which total around $1.5MM USD, are private and half are through a broker.

So I’m probably qualified to write about the pros and cons of selling privately.

Ultimately, it boils down to getting the best website for the price that makes sense. Or as a seller, getting the best deal (not just price) for your business.

Let’s explore further.

The Obvious Pros For Sellers

The most obvious reason to sell a website privately is avoiding broker fees. That’s the main motivation for 99% of private sellers.

At the end of the day, when you sell, you’re looking for money, so the more money the better.

Sidenote: There are other reasons why it might be beneficial, but I’ll go into these later.

What About The Pros For Buyers?

Conversely, most buyers want to deal privately because they can get a lower price.

Well hello, now the two most obvious reasons on either side are in contradiction with each other.

This is one of Greg’s main points (and pretty much every broker’s main point). Buyers want to negotiate you down, so you’re better off going with a broker who will get you a higher price, even after you pay their fees.

This isn’t just lip service either. Website valuations are about supply and demand, and brokers bring the demand. 

Most brokerages have tens of thousands of buyers on their lists. Of course they can get you a better price than if you sell privately.

We could end the discussion here, but let’s go on and look past the obvious reasons.

Less Obvious Reasons To Sell Privately

For many people, keeping the sale quiet is an important consideration. Some brokers can help you sell “off-market”, but for the most part, you won’t keep a sale secret unless you sell privately. Brokers are great because they have a huge network of potential buyers, and they WILL let them know about the sale.

It’s also a lot easier to control who buys your business if you sell privately, although this depends on where you’re listing the business. Most brokers still allow you to say no to a sale, though some don’t as long as the price is met.

This can also be a pro for buyers, because you don’t want a business to tank after everyone learns of the sale and fears the worst will happen, and many buyers also don’t want competitors looking under the hood and stealing information.

For many people though it doesn’t matter. You just want to hand your business over to whoever meets your asking price.

For others, the legacy of the business, the team, and “their baby” are very important. We’ve actually had several people sell to us specifically because they knew we’d take good care of their business, and not fire their team afterwards (we even promoted several of them to senior roles).

Other people prefer selling privately because it’s easier and quicker. I’ll add a caveat here that this is not always the case. An example of a quick sale might be when someone who has already sold to me before (whether privately or through a broker) comes back to sell another business to me later. Since we’ve worked together before, we can often do a deal faster.

However, private sales can also be harder and longer. Maybe the buyer backs out and you have to scramble to find another one, or maybe the buyer lowballs and kicks the tyres. In many cases a broker will make the process smoother (more on that later), so I would give a strong “maybe” to this pro.

There is one other reason people often sell privately, and that’s because their business might not qualify for a broker. Maybe it’s shady, they have something to hide, or a broker doesn’t think it can sell.

I’m not going to cover these types of businesses in this post, as I want to speak to those who could otherwise have a choice.

Let’s Talk About Some Of The Cons

Selling privately does have cons, hence why brokers exist in the first place. The biggest is one we’ve already touched upon.

Selling privately can be daunting, and buyers might try to lowball you.

The other major cons for sellers are the time involved. It can take months to sell a business privately (unless you come to us, hint hint),  and the money you save on broker fees, you may end up losing through opportunity cost.

If you have good plans for the money, time may be the most important element.

Equally, peace of mind is vital. With a broker, you don’t really have many doubts about whether you sold your business on the cheap, or with unfavorable terms. This might be a huge concern when selling privately.

Finally, dealing with the buyer can be an arduous task in and of itself. Buyers may be just as inexperienced as you, and have a lot of emotion involved. Selling privately is not likely to be a smooth process if one or both of you are beginners.

Let’s also not forget the actual practical side of things.

Asset Purchase Agreements, Bills of Sale, Letters of Intent, Escrow terms, migrating and handing over the assets…all of these can be difficult if you’re going private and trying to figure this all out for yourself.

Pros Of Using Brokers For Sellers

We’ve covered some of the pros of brokers already. They’re direct opposites to the cons of selling privately. However, there are some additional pros to talk about.

As a seller, while your fundamental goal is to get the best price for your business, you have to understand the process this will take you through.

Most buyers will want to verify your financials, your traffic, your backlink profile, and pick holes in your story. Many of them will insult your site, saying it’s not very good, and could be better, and then they’ll offer to buy it. 

It’s an exhausting process, particularly as the sale price increases, and a broker makes your life infinitely easier. When I sold Humanproofdesigns, my broker FE International vetted buyers before even letting them get on a call with me. 

They also spent 1 month verifying my financials and claims before they even listed the business. I had to go through that process once, rather than dozens of times. 

They also protected me from garbage offers (of which there were apparently many), and told potential buyers whether their offer was competitive or not. They advised me on whether an offer was worth taking, or whether a particular buyer was a time waster or not.

It was money well spent (plus, I only spent money after they’d helped me earn money through a sale).

Sure, with a smaller ticket sale, this is less important. If you’re selling a generic affiliate site for $50,000 or less, maybe you don’t need a broker helping. Maybe you can just list on Flippa, Investors.club or Motioninvest.com and hope for the best.

For larger ticket sizes, say anything above $100,000, you should seriously consider using a broker, especially if it’s your first time.

Sometimes, the broker can make the difference between a sale actually happening or not. They can help reassure a buyer that you are legit. They can help negotiate deal terms that keep both parties happy (without emotions ruining the deal), and if a buyer goes MIA (which happens), they can line up a replacement. 

There are many buyers out there who just wouldn’t trust a private sale, and that can make the difference between being able to actually find a buyer for your business or not. Buyers don’t NEED to buy privately, so they tend to err on the side of caution and go with a trusted broker.

I’ve experienced all of the above multiple times as both buyer and seller, which is why I laugh when someone says “All they do is send an email”. 

More than likely, they’re also managing your emotions.

Broker Pros For Buyers

Similarly, buyers benefit from the same relationship. Knowing that the broker has vetted the financials on a business is a huge time saver. 

Sure, you still need to verify everything yourself, and after that you need to determine if the business is a worthwhile acquisition, but time and money is saved either way.

You know what else is true? 

Brokers usually have the best businesses. Not always, but usually.

Your goal as a buyer should be to get the best business for your money. It’s not to get the cheapest business.

Most of my best purchases were paid at or above market-average price. 

We’re in a risky industry, and your priority should be buying the best quality cash flow, not getting cashflow for the cheapest you possibly can.

Does that mean you want to engage in RJR Nabisco level bidding wars and massively overpay for a business you have just GOT to get your hands on? 

No. 

But does it mean you should listen to Warren Buffet when he says “Better to buy a great business for a fair price, than a fair business for a great price”? 

Yes.

Brokers can also vouch for you as a buyer. Different brokers use different methods of facilitating a sale, but my relationship with them has definitely helped land multiple deals where the broker told the seller I was a good buyer with a good track record and ability to close. 

Sellers are nervous that you’ll try to rip them off, steal information about their website, or lowball them. Working with a broker largely removes this issue, and can make the difference between a sale actually happening or not (which I also referred as a pro for sellers).

Cons Of Using A Broker For A Buyer

Finally, let’s look at some of the cons of buying through a broker for a buyer.

The first is price. Brokers more or less control the market, and they have to price their fees in to the selling price as well. Remember how earlier we discussed brokers will likely get you the best price when selling? 

This means you’ll likely be paying a high multiple, particularly if you go through a top quality broker.

It’s all relative though. High prices (usually) mean better quality businesses.

We’re reminded again of the Warren Buffet quote above.

As you may have noticed, I don’t consider the prices a huge downside as a buyer.

The main concern for me is competition.  When you buy from brokers, you have to worry about competition in 2 real areas. The first, another buyer may beat you to the deal, or have a better offer accepted.

The second, the businesses’ competition may have access to information that they can use to out-compete you later.

Sure, there are NDAs and non-compete agreements, but in reality, that’s not going to stop a competitor looking under the hood.

One of the main reasons I love buying privately is because it keeps the deal secret, or at least let’s me control the narrative, and because I can land the deal without having a bidding war, or a “wire race” to worry about. 

I’ve been known to offer reasonable prices similar to what brokers would get private sellers simply because I want to get the deal done. 

One Other Consideration

There’s another frustrating part about dealing with on-market deals.

You never know what else might be available in the future.

This isn’t exactly brokers fault, as they might not know what’s coming either. 

However, there are definitely times when brokers release a business for sale, I consider buying it, and then next week a better one comes along. The “What else is out there?” question is one well worth paying attention to, and it makes it a lot harder to pull the trigger on a business. 

There are two real ways we deal with this.

1.) Have a strict criteria and if a business meets it, then  go for it. Don’t worry if something better comes along, because this one is still great.

Criteria could be quality or price related, but really should be both.

2.) Work with buy-side brokers.

There are an increasing number of brokers out there who work with buyers rather than sellers. You tell them your budget, your desired niche or business type, and they’ll seek out a business for you. It might take longer, and you’ll be the one paying the fees, but you’ll be much more likely to end up with something ideal.

How To Actually DO Private Deals

Of course, all of this assumes you actually have the choice.

 Selling privately assumes you’re able to find a buyer, and buying privately assumes you’re willing to put in a lot of effort – usually doing cold outreach and hoping for the best.

Even then, it can be a massive headache. As such, for most of you, my advice is just deal with a broker and be grateful that they’ve spent the better part of a decade building a robust market.

For sellers, you have a few extra options, like us at Onfolio, and for buyers, you can work with buy-side brokers like David Carrol, Laurent or companies such as Falconriver.co. 

Whatever you do though, I think the most important thing is to understand the bigger picture, and not just start reaching out to people privately under the belief that they’ll automatically get you a bargain price.

I do feel a large part of the fascination many buyers or would-be buyers have with private deals comes down to the lack of overall strategy. Most people just want to buy a good business at the best price possible, rather than the best business at a good price (as I’ve mentioned twice before).

As a result, they think “Ok, private deals are probably cheaper” and they look at options. By missing some of the bigger parts of the strategy, private deals can end up costing you more money, as you get scammed, waste time, or miss out on a fantastic on-market deal.

Do I Recommend Private Deals Or Not?

Reading this article, you might think I’m biased towards brokers and recommending you only work with them.

That’s not really the case.

I’ve done a large amount of private deals and will continue to do them. 

Some of my best opportunities and deals have come from buying privately…but some of my best deals also came through brokers.

My main point in this article is that you might have missed a few of the benefits that brokers provide, and may not have realized some of the cons of selling privately. For most people, brokered deals are going to be the way to go, unless you are experienced.

For sellers, a private deal can be tricky. If you sell to an inexperienced person, you’ll wish you’d had a broker helping you. If you sell to an experienced person on the other hand, they’ll likely be aware you’re saving a broker fee, and will use that to negotiate the price lower (except if you sell to us, we don’t really do that).

It’s always worth considering your options and trying to sell privately if you can, and if you can see the benefits, but otherwise, brokers aren’t such a bad bunch. My aim for this article is for you to realize the bigger picture on both sides of the deal, so you can better make a decision around the key points.

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