And How To Avoid Traditional Wall Street Strongarm Tactics
When you’re ready to sell your business, the first big step is hiring a business broker, who will ask you to sign an engagement agreement.
Selling a business is complex, and the engagement agreement you sign with a business brokerage firm sets the tone for the entire process.
And if your operation is a family business you’ve nurtured for years, making the decision to sell is more than transactional; it’s a significant life event.
You need to know who you’re hiring – and how they work.
You wouldn’t trust a mechanic who can’t fix his own car or a dentist with crooked teeth…
And you shouldn’t trust a business broker who uses convoluted agreements filled with Wall Street strongarm tactics. A Broker’s agreement should be transparent and align with your interests as the seller
Problem is, many brokers use industry-standard agreements designed to protect one demographic:
Brokers.
In this article, we’ll explore:
● Common “strongarm tactics” used by brokers (and why they default to these tactics)
● What you should look for in a listing agreement
● How our agreement is rewriting the rulebook to make selling your business a “win-win” situation instead of a broker-focused transaction
Let’s dive in:
The Problems with Traditional Engagement Agreements
Every engagement agreement outlines the broker’s responsibilities, the duration of their appointment, their fees, and when those fees are due.
These agreements often include blatant compromises on your part as the seller.
Here are some common issues:
● Upfront Fees:
Many brokers demand upfront fees for valuations and preparing
marketing material that potential buyers will review. Those fees can motivate
them to sign you up as a client, even if they’re not entirely confident they can sell
your business.
● Break Fees:
If you reject a buyer the broker finds, you might still owe the broker
their fee. This means you don’t get the final word, plain and simple.
● Contingency Payments:
Brokers often collect their full fee at closing, regardless
of whether you receive all your cash upfront.
●Rigid Termination Clauses:
Many brokers require a one-year exclusivity period,
even if they’re not performing.
Everything listed above is “industry standard” and you should assume your broker is operating this way until you’ve read their listing agreement.
At TWS, we do none of the above.
The rest of this article will explain how we work and contrast it with these typical “industry standard” agreement terms.
Why We Charge Zero Up-Front Fees
The most obvious “gotcha” in the traditional listing agreement:
Paying a hefty tab of fees upfront. And the typical sentiment around the industry is simple:
Too bad. Consider it the cost of doing business.
At TWS Advisory, we decided not to work this way.
We’re not in the business of listing companies for sale; we’re in the business of selling them.
If we don’t sell your company, we don’t get paid.
Now, is this a guarantee that working with us will get your business sold every single time?
Absolutely not.
But you won’t have to come out of pocket for tens of thousands of dollars in expenses upfront just to see zero results and end up jaded with the idea of selling in general.
Our entire process is built around setting your business up for an actual sale:
First, we assess how outside buyers will value your company. Then, we have an honest conversation about a targeted sales price and timeline to get you paid.
If it makes sense to move forward and you like the terms, only then do we initiate an engagement.
You Get The Final Say
Traditional listing agreements penalize sellers for turning down buyers.
Example:
You’ve been talking with a certain buyer who seemed good, but they suddenly mention that they’re going to lay off 100% of your staff who have been at your company for decades.
If you want to turn down the deal to protect your employees? You’re going to pay a large penalty for turning away that buyer.
Our agreement eliminates this.
You get final approval on who is buying your business. Period.
If you don’t want to sell to someone planning to axe your staff? You don’t have to.
Don’t want to sell to your competition because…you just don’t want to? You don’t have to.
Our job is not to find you just any buyer, but the “right” buyer.
For many owners, selling the business is about more than price. It’s about your legacy – and the decades of work you’ve put in to build it.
Contingency Payments and Seller Financing
Getting as much cash up front as possible is important. But most deals need some sort of creative financing in order to close.
Remember, the worst deal isn’t “less cash upfront” – it’s no deal at all. Offering a modest amount of seller financing can help bridge the gap between your buyer’s valuation expectations and help get lenders onboard to finance your buyer.
A common structure might look like this:
● 5% buyer’s cash down payment
● 5% seller’s financing
● 90% financed with an SBA-7A loan
Without that 5% seller financing, the lender may require your buyer to double their cash down payment in order to secure the loan.
The main problem here is most brokers collect their fee at closing based on the total sales price, no matter if you get all your cash upfront or not.
Imagine you sell your business for $1 million but agree to finance 5% of that for the buyer. The broker will still calculate their 10% fee on the full $1 million, even though you’ve only pocketed $950,000.
This feels a bit unfair. You’re left waiting on a part of your payment while the broker walks away fully paid.
But there’s an even bigger issue at play: a potential conflict of interest.
When a broker is advising you, the temptation is there to downplay the risks of seller financing.
Why?
Because they get their full fee, no matter what.
So, while you’re left hoping the buyer will repay that 5%, the broker’s already counting their commission. This setup can make you question whose best interest your broker is really looking out for.
Once again, we don’t work this way.
We get paid when you get paid, never before.
This means if your deal involves any seller financing or contingency payments, we delay an equal part of our fee until after you receive those payments.
This way, we’re not asking you to take a bet on a buyer we wouldn’t bet on ourselves.
If you don’t get paid in full, neither do we.
Why You’ll Never Feel “Stuck” Working With Us
Most competitors require a 1-year exclusivity period to sell your business - even if they’re not performing!
This means you are required to let your business sit unsold for a set period of time - with no real recourse if you feel like the broker isn’t putting in any work to make the sale.
Here at TWS, we only require a 90-day exclusivity period.
What does this mean for you?
You’re not stuck in a year-long contract if the broker you hire isn’t putting in the work or doesn’t have the expertise to get your deal moving.
This approach shows that we’re committed to letting you keep control and helps build trust.
If we introduce you to a buyer within those 90 days and you end up selling to them within the next 24 months, we get paid our fee for making the introduction.
We aim for a 6 to 12-month sales process from engagement to payment. However, we’re confident that within those first 90 days, you’ll see that trusting us to sell your business was the right decision.
Selling your family business is a significant life event, and you deserve a broker who “gets it”.
We also encourage you to seek outside legal advice throughout the process of selling your business. This includes before signing any engagement agreement with us – or any business broker.
If you’re looking to stress test anything mentioned in this article – or you just want to make sure you sign with the right broker – send our agreement off to your attorney to compare with any agreement from another firm.
Your attorney can give you an opinion on which agreement keeps you in the driver’s seat, so you’re not screwed by Wall Street strongarm tactics.
And if you’re looking to sell your business in the near-term, book a consultation with me here and we’ll see if the working relationship makes sense.
Other questions or clarifications? Shoot me an email – sean@tws-advisory.com