Exclusive Agency - Best for the Seller and the Broker
By Scott Mashuda

One of the most common misconceptions among business sellers is the notion that hiring multiple business brokers or intermediaries on a nonexclusive basis will increase the likelihood of sale for your business. Although in theory engaging multiple intermediaries and having non-exclusive agency means you get the benefit of multiple brokers working on your behalf for the cost of only one (the one who is successful), the theory is flawed and the strategy rarely works to your benefit.

Even the hardest working and most dedicated brokers have a fixed amount of time and resources to invest in selling your business. Since most intermediaries are paid primarily by commission the intermediary takes the risk for selling your business. Therefore, it can be argued that without the security of an exclusive agency agreement, the intermediary s risk exceeds their potential return.

Example: Let s assume you offer Intermediary A nonexclusive agency to sell your business but, have also effectively negotiated nonexclusive agency agreements with Intermediaries B, C and D. Now, all four intermediaries: A, B, C and D are all assuming 100% of the risk on the same transaction. They are each in essence agreeing to invest their very valuable time, effort and resources into selling the same business. Their maximum potential success rate is 25% with a minimum 75% failure rate. At best, one broker will succeed and 3 will fail.

Now, you may respond with the following, “As long as one of them is successful, I don t care about the other three.” Or, “That s the business they re in and they knew that was the risk when they took the job.” Although this is true, the trouble lies in the probability that a broker working with a non-exclusive agreement will actually complete the sale of your business.

Brokers and intermediaries are by nature risk players but, they are not fools. They understand that a nonexclusive agency agreement has compounded risk. Therefore, most intermediaries will hedge the risk of non-excusive agreements by shifting a majority of their resources (time, man power, marketing dollars, etc.) to projects with exclusive agency agreements. Why shouldn t they? The risk is substantially lower and the reward is often equal or greater. It s simply a good business decision.

Just as a buyer will consider the risk of your business versus the potential return on their investment so will your broker or agent. If the intermediary s investment exceeds the potential for a paycheck, as is typically the case with nonexclusive agency, they will focus their efforts elsewhere. You must be willing to share the risk of selling your business with your representatives.

Scott Mashuda
Managing Director
River s Edge Alliance Group, LLC
Phone: (440) 915-3082
E-mail: smashuda@riversedgealliance.com
Website: http://www.riversedgealliance.com
Blog: http://www.riversedgealliance.com/blog1

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