Mr. Handelsman

Finance & Investment

Sell on Your Own, Or Use a Broker?

By Mike Handelsman, Group General Manager, BizBuySell.com

In the world of real estate, selling without the assistance of a real estate agent has received a lot of attention. But is it really a good idea to try and sell your hotel on your own?

In my role at BizBuySell.com, I talk to a lot of business sellers. While the thought of saving a broker commission is attractive, sellers who pursue a For Sale By Owner (FSBO) transaction have found that it’s easier said than done.

Is it possible to sell your hotel or hospitality business yourself? Absolutely, but it’s not for everyone. In some cases, a FSBO sale may be the right answer. But in most, the smart move is to hire a professional broker t8o list your hotel and locate a buyer.

When Selling a Hotel On Your Own May Be the Right Answer

Every hotel sale is unique. But for the most part, there are a few scenarios that might make a FSBO transaction a better fit for your business exit.

If the sales price is less than $200k

Brokers invest a significant amount of time and money in selling a hotel regardless of the hotel’s final sales price. Since they earn their living by charging a commission (usually around 10%), it may be difficult to attract a good broker if the sales price is too low. For sales of less than $200,000 you are probably better off pursuing a FSBO sale with the assistance of your attorney, your accountant and other professionals. If the thought of a FSBO sale for your business is overwhelming to you, it’s still possible to hire a broker – just expect to pay a higher commission rate.

If you are selling to a family member or employee

Under certain circumstances, selling your business to a family member or a trusted, competent employee can mitigate the need for a broker, especially if the sale is the culmination of a larger transition plan. With a qualified buyer in hand, the assumption is that your close, pre-existing relationship will lay the groundwork for an easy sale. Certainly, you don’t need the normal services of a broker to locate potential buyers on your behalf. However, you may still benefit from other broker services such as a proper valuation for your business, and help with a proper closing. The fact that you are selling to a relative or friend doesn’t guarantee that a FSBO approach will be the best option. In some cases, you may need a broker just to keep your family or personal relationship intact!

If you have significant hotel sale experience

Inexperience is costly and most owners simply don’t have the experience or connections to get top dollar in a FSBO transaction. Having said that, some owners do possess the expertise and resources to represent themselves in the sale of their hotel. For the right owners, selling experience can combine with firsthand knowledge of the business to create a formula for success.

Not So Fast, Say Some Brokers

Yet despite the apparent benefits of FSBO sales, many business brokers counsel sellers not to waste time selling their hotel on their own.

Business brokers can add a lot of value, most importantly by maximizing the selling price of your hotel. Here are just a few of the things they bring to the table that you may have trouble doing on your own:

Setting the Asking Price

Anyone can set an asking price for your hotel. But it takes experience to set an asking price that is neither too high nor too low for the marketplace. Although your broker will work to get the highest possible price for your business, he also understands that the price needs to be at a level that allows buyers to meet income and cash flow requirements right out of the gate. Even more, a good broker will be able to assign dollar values to adjustments that may arise over the course of negotiations (e.g. cash sale vs. partially-financed, finance terms, etc.).

Laying the Groundwork for Negotiation

Brokerage and negotiation go hand in hand – great brokers are great negotiators. Their experience in hotel sales gives them invaluable insights into the minds of buyers and the workings of the marketplace itself. Most business brokers are especially adept at developing a negotiation strategy that drives the sale toward its completion and enables you – the seller – to achieve your exit goals. But creativity and expertise aren’t the only negotiation-related benefits you can gain from a broker. Many sellers also find that brokers give them a much-needed objective perspective throughout the negotiation process.

Marketing Your Hotel

If you think marketing a hotel consists of placing an ad in the local classifieds, then it’s definitely time to hire a broker. Marketing a business is a highly-involved and complex process – and brokers are experts at doing it right. A marketing strategy can include a variety of tasks including the preparation of a business plan, the compilation of promotional materials and the analysis of target markets. An additional wrinkle comes into play when the seller needs the sale to remain confidential for business or personal reasons. By limiting marketing efforts to a narrow band of qualified prospects, the broker can maintain a low-profile while ensuring that the right people know your hotel is on the market.

Pre-Qualifying Buyers

As you might expect, there are a lot of tire-kickers out there in the hotel-for-sale marketplace. I’ve seen too many sellers invest time and energy in a prospective buyer, and then find out later that he lacked the capacity and genuine desire to actually purchase the hotel. Brokers are extremely knowledgeable about which buyers are serious and which aren’t, and just as importantly, which buyers possess the financial resources and skills to actually complete the transaction.. Business brokers possess the expertise and processes to quickly cull out the tire kickers and unqualifieds before they sap valuable time and energy from your sales process.

Facilitating Financing

The vast majority of buyers require some form of financing to purchase a business. Regardless of whether that financing will come from you or a third-party lender, your broker will be able to facilitate the financing process and achieve a finance structure that protects your interests. In many cases, the broker will even leverage relationships with small business lenders to ensure favorable financing terms.

So What’s the Answer?

At the end of the day, it’s your decision whether to hire a broker or to attempt to sell your hotel on your own. But if you choose a FSBO approach, just make sure you know what you’re getting into – be realistic about your skills and the time commitment it will require.

Mike Handelsman is Group General Manager for BizBuySell.com and BizQuest.com, the Internet's two largest and most heavily trafficked business-for-sale marketplaces. Both sites feature business valuation tools that draw from the largest databases of sales comparables for recently sold small businesses and include two of the industry's leading franchise directories. Since 1995, BizBuySell and BizQuest have offered tools that make it easy for business owners and brokers to sell a business and for potential buyers to find the perfect business. Together, BizBuySell and BizQuest list more than 75,000 businesses for sale at any time and have over 850,000 monthly visits. Mr. Handelsman can be contacted at 415-284-4390 or mhandelsman@BizBuySell.com Extended Bio...

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