Your business broker plays a key role in the sales process. From determining your company’s value to closing the sale after due diligence, your broker should be there to guide you through all stages of your sales journey. Business owners who are planning their exit strategy must decide whether they want to work with a niche or general business broker. In this article, we discuss the role of a niche broker and a general business broker, highlighting the differences between each.
Niche vs. General Business Brokerage: What is The Difference?
A business broker is a professional who helps business owners sell their company for fair market value. They help the seller through all stages of the sales journey. In some cases, they may work on behalf of a buyer instead of a seller. Both niche and general business brokers offer the same services. These services usually include:
- Business valuations
- Sale preparation
- Finding qualified buyers (confidentially)
- Facilitating negotiations
- Due diligence assistance
Of course, the primary difference between a niche and general business brokerage is that a niche brokerage specializes in a certain industry (or alternative type of “niche”). On the other hand, a general business brokerage offers its services to most business types.
What are The Pros and Cons of a General Business Broker?
The primary benefit of choosing a general business broker is the ability to gain access to more potential buyers. Oftentimes, the buyer a seller chooses is not directly involved in the same industry. In some cases, it could be a company from another industry expanding its services, or the buyer may simply have a passion for your industry without direct business experience.
A general business broker is more likely to locate these buyers, which broadens the search for a qualified buyer and gives you more opportunities to secure a deal for favorable terms in a timely manner. Also, although the business processes may vary for each industry and business type, the way in which the company is sold is the same.
So, what are the cons of choosing a general business broker? This depends on the broker you choose. Most qualified and experienced general business brokers offer the same benefit as a niche broker who specializes in your industry. However, in some cases, a less experienced broker may not take the time to understand the intricacies of your business and may fail to realize your growth potential and intrinsic company value, whereas this may be less likely to occur if you choose an experienced general broker or a niche business broker.
What are The Pros and Cons of a Niche Business Broker?
A niche broker, particularly one who is proven with experience and good reviews, may provide an accurate valuation as they are highly familiar with your industry (and recent sales data within your industry). Additionally, they may be able to give this valuation faster, whereas an experienced general broker may need to conduct more detailed industry research if they are not already familiar with your industry and business model.
A niche business broker may also have access to buyers within your industry who already understand how companies within your industry operate. In some cases, this could be a larger company that is looking to “buy you out.”
Unfortunately, however, niche business brokers are not always able to match their clients with an ideal buyer. This is because they have limited access to buyers as they only specialize within the industry and do not always find success with fielding offers from outside of your industry. This severely limits your reach during the sales process and can lead to longer time periods on the market and offers below market value.
3 Important Things to Know Before You Choose a Broker
Below are important things to keep in mind when choosing your broker. Specifically, this information helps you decide whether a niche business broker or a general business broker is right for you.
The Sales Process is Similar for All Industry Types
As mentioned, the sales process is essentially the same no matter your company’s type, size, or industry. Therefore, there is no reason to hire a niche broker over a general business broker. Instead, it is best to choose the broker who provides the most experience and understands the sales process the best, regardless of whether they specialize in your industry or provide more general services for all industries and business types.
A General Broker Can Help You Reach Prospective Buyers From Outside Your Industry
Keep in mind, a business sale is done privately to maintain confidentiality, so there are no public marketing methods employed. In many cases, a niche broker only has connections within your industry. This can severely limit your reach when you market your company for sale. On the other hand, a business broker who does not only focus on one industry can often get your sales memorandum in front of hundreds of prospective buyers who are qualified.
Additionally, if you work with a broker who specializes in a particular niche or industry, you are far more likely to sell to a buyer who is not qualified and does not fully understand how to operate a company. This often leads to bad news for the vision you have for your company, your employees, and your existing clientele. General business brokers are usually more capable of finding a buyer who is qualified and prepared to take over operations and continue growing the brand and company you have created.
Buyers From Outside Your Industry May Be Willing to Pay More
In many cases, buyers from outside a certain industry or niche are willing to pay more. There are a multitude of reasons why this may be the case. For instance, a buyer within your industry may be able to better identify areas where your company has not performed well and use this as a reason to negotiate a lower offer. Also, in many cases, a buyer from outside your industry is more motivated to purchase as they view it as a way to enter the industry, whereas a buyer already in your industry may have less interest (or ability) to make competitive offers.
Contact The Experience Business Brokerage at Sigma Mergers and Acquisitions
Sigma Mergers and Acquisitions has years of experience helping businesses in a range of industries sell for fair market value or greater. If you would like to discuss the specifics of your company and get the process started with a free business valuation and consultation, then contact us today.
