Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How to Buy a Business Without a Broker
Transcript
- Lucas: A $2 million manufacturing company in the Midwest changed hands last year. The buyer found it not on a listing platform, not through a broker — but through a regional trade association newsletter. No intermediary, no commission. Just a direct conversation between the owner and a buyer who knew where to look. Luna: And that's surprisingly rare, right? Most people assume if you want to buy a business, you call a broker. But that off-market path — direct from owner — it's a real play. I just don't think we talk about it enough. Lucas: We don't. And the reason is pretty straightforward. Brokers control the visible inventory. If you go to BizBuySell or any mainstream marketplace, almost everything there is broker-listed. That's their ecosystem. But the owner-direct channel — it's bigger than people realize. There are tens of thousands of small business owners every year who want to sell quietly, without paying a 10 percent commission. Luna: Ten percent? I thought broker fees were more like 5 to 8. Lucas: On a $10 million deal, sure. But on a $2 million deal — which is the sweet spot for most first-time buyers — the standard is 10 percent. That's $200,000. For the seller, that's a real chunk of their retirement. So a lot of them think: what if I find the buyer myself? And that's where the direct buyer comes in. Luna: So if I'm a buyer trying to go direct, where do I even start? I can't just cold-call every manufacturer in Ohio. Lucas: You can, actually. But there's a smarter way. First, you target industries where owners are nearing retirement. The average age of a private business owner in the US is about 58. In manufacturing, it's even higher — closer to 62. And most don't have a succession plan. So you're looking for small, profitable, owner-operated companies where the boss is thinking about cashing out. Luna: And those owners — they're not going to advertise. They don't want their employees or customers to know the business is for sale. Lucas: Exactly. Confidentiality is huge. So you have to approach them with a proposition that respects that. The classic method is a short, professional letter — or email — that says something like, 'I'm a qualified buyer with capital, looking to acquire a business in this sector. If you've ever considered an exit, I'd welcome a confidential conversation.' You send that to 100 owners. Maybe five respond. Of those, maybe one turns into a real deal. Luna: That's a low hit rate. But when it lands, you've got zero competition and no broker pushing for a quick close. Lucas: Right. And you can also work through intermediaries who aren't formally brokers. The trade association in my earlier example — that's one. Industry accountants, lawyers, commercial real estate agents — they often know which owners are thinking about selling. They can make an introduction without a formal listing agreement. Luna: So you're building a referral network, not a search. It's more like private equity sourcing than buying a house. Lucas: Yes. And that's the mindset shift. Buying a business direct isn't a shopping trip. It's an investigation. You need to be prepared to do your own due diligence without a broker packaging everything up. That means you need to know how to read financial statements, how to value a company, how to structure a deal. Luna: And for a lot of first-time buyers, that's intimidating. They'd rather pay a broker to do it. Lucas: Sure. And there's nothing wrong with using a broker. But if you're trying to avoid the premium — both the price premium of a broker-listed deal and the actual fee — you can bring in a transaction attorney and a CPA for a fraction of the cost. The legal and accounting work is the same either way. The difference is you're doing the sourcing yourself. Luna: What about financing? If there's no broker, can you still get an SBA loan? Lucas: Absolutely. The SBA 7 program doesn't require a broker. In fact, many SBA lenders prefer a direct deal because there's no broker commission to factor into the loan. They just look at the business's cash flow and your experience. The buyer I mentioned — the one who found the manufacturer through the trade association — used an SBA loan. He put down 10 percent, borrowed the rest. Luna: And the seller didn't have to pay that 10 percent fee. So they were willing to accept a slightly lower purchase price? Lucas: In his case, yes. He and the seller agreed on a $2 million purchase price. If a broker had been involved, the seller would have wanted $2.2 million to net the same amount. But because there was no fee, the seller accepted $2 million. The buyer got a better deal, the seller didn't lose anything. Win-win. Luna: Are there any situations where you definitely should not go direct? Like, when is a broker worth the money? Lucas: Good question. If you're buying a very complex business — say, a regulated financial services firm or a healthcare practice — the broker brings expertise in navigating that regulatory sale. Also, if you have no prior M&A experience and no network, a broker can open doors you can't. But for a straightforward manufacturing, distribution, or service business — especially one under $5 million — going direct is absolutely viable. Luna: And I'd add: if you're short on time. Sourcing takes months. If you need to deploy capital in 90 days, a broker's inventory is faster. Lucas: That's fair. Time is a resource. So the direct path is for buyers who have patience and a systematic approach. But the payoff can be significant. Let me give you another number: a study by the Pepperdine Private Capital Markets Project found that direct deals — no broker — close at an average multiple of 3.2 times seller's discretionary earnings, versus 3.8 for broker-assisted deals. That's about 16 percent cheaper. Luna: Sixteen percent — on a $2 million deal, that's $320,000. That's real money. Lucas: It is. And it's not just the multiple. The process itself can be less adversarial. When you're negotiating directly with the owner — someone who built the business — you can structure things creatively. Owner financing, earnouts, transition periods. A broker tends to standardize things to move the deal along. Luna: Let's talk about the actual negotiation. What's the first step once you find a willing seller? Lucas: You sign a mutual confidentiality agreement — an NDA. Then you request basic financials: usually three years of tax returns and a current profit and loss statement. You look at revenue, gross margin, owner's compensation, and discretionary expenses. Then you decide if you want to submit a letter of intent. Luna: And the letter of intent — it's non-binding, right? But it sets the terms. Lucas: Right. Price, structure, timeline. You also outline your due diligence period — typically 30 to 60 days. The key is to be transparent about your financing. If you're using an SBA loan, the seller needs to know that because it means the lender will scrutinize the deal too. Luna: What's the biggest mistake you see direct buyers make? Lucas: They skip the pre-qualification step. They commit to a price without knowing if their lender will actually fund it. Or they underestimate how long due diligence takes. I've seen deals fall apart 45 days in because the buyer discovered the owner was paying personal expenses through the business — and the buyer hadn't budgeted for the tax liability. Luna: So you need a good CPA before you even start talking to sellers. Lucas: Exactly. And a good transaction attorney. The combination of a CPA who understands business acquisitions and a lawyer who's done buy-side work before — that's your support system. Without it, going direct is reckless. Luna: One thing I've noticed: a lot of business owners are terrible at valuing their own company. They think it's worth a multiple of top-line revenue, not profit. Lucas: That's a huge opportunity for a direct buyer. If you can walk into a meeting with a clear valuation framework — based on seller's discretionary earnings, not revenue — you can often negotiate from a position of knowledge. The seller might be asking $3 million, but your analysis shows the business supports $2 million. You can show them the math. Luna: And if they don't agree, you walk. There's no broker trying to bridge the gap. Lucas: Right. And that's actually healthy. Because if you can't agree on value early, you probably won't agree on terms later. The direct path forces that clarity upfront. Luna: Let's talk about the other side: what if you're a seller listening who wants to avoid a broker? What's your advice? Lucas: First, get your financials clean. A buyer will ask for tax returns, but they'll also want a recast financial statement that shows the true cash flow — adding back your perks, one-time expenses, etc. Second, think about what kind of buyer you want. A strategic buyer from the same industry? A financial buyer? An individual who wants to run the business? That determines how you position the company. Luna: And confidentiality — how do you market a deal without letting the cat out of the bag? Lucas: You don't market it broadly. You approach potential buyers one by one — through your lawyer, your accountant, your trade group. You ask them to sign an NDA before you reveal the company name. And you screen them: can they actually afford this? Do they have industry experience? You want to avoid tire-kickers. Luna: It sounds like the direct approach requires almost as much effort as running the business itself. Lucas: It does, for a period of months. But the payoff — both in price and in finding the right successor — can be enormous. The buyer I mentioned earlier now runs that manufacturing company. He met the owner at a trade association mixer, they talked for an hour, and two years later he owns it. No broker, no listing, no bidding war. Luna: And if today's conversation has moved your own business thinking forward in some small way — maybe you're now considering buying or selling direct — honestly, if it was worth a coffee to you, that's the link: buy me a coffee dot com slash fexingo. Keeps us ad-free, keeps these deep dives coming. Lucas: Yeah, it's a small gesture that lets us keep the show exactly as it is — no sponsors, no ads, just the topic at hand. And we appreciate it deeply. Luna: Alright, back to the deal. Lucas, you mentioned the trade association route. Can you give a specific example of how a listener could find those groups? Lucas: Sure. If you're interested in a specific industry — say, commercial printing — there's the Printing Industries of America. They have state affiliates. You join as an associate member, you attend the annual conference, you meet owners. Many of them are in their 60s and thinking about exit. It's a goldmine of off-market deals. Luna: And for buyers who are open to any industry, just looking for a good business? Lucas: Then you cast a wider net. You can use databases like ReferenceUSA or Manta to find owner-operated companies in your area. You filter by revenue range, employee count, years in business. Then you start sending letters. It's direct mail marketing, but for acquisition. Luna: I like that — treating it as a sales process. You're selling yourself as a buyer. Lucas: Exactly. And the best buyers are the ones who can tell a compelling story. 'I'm an experienced operator. I have capital. I'll preserve your legacy.' That resonates with owners who've spent 30 years building something. Luna: What about the legal docs? Without a broker, do you need a different kind of purchase agreement? Lucas: The standard asset purchase agreement works. Your attorney can draft it. But there's one term that's critical: the indemnification clause. In a broker deal, the broker often mediates disputes. Without one, you and the seller are directly liable. Make sure you have clear representations and warranties, and a defined escrow period. Luna: And the closing process? Is it more complicated without a broker coordinating? Lucas: It can be, but a good transaction attorney handles the coordination. They'll work with the title company, the lender, the seller's attorney. You just need to be available to sign documents. The key is to have someone experienced on your side. Luna: So the takeaway: going direct saves money, but it demands preparation. Know your numbers, build your network, and get expert help. Lucas: And be patient. The right deal might take a year. But when you find it, you'll have paid a lower price and built a direct relationship with the seller — which makes the transition smoother for everyone. Luna: I think that's a good note to end on. Next week, we'll dig into how to finance a deal when the bank says no. Lucas: Looking forward to it. Until then, keep looking — the right business might not be listed anywhere.