Selling a business on Craigslist: The perks and pitfalls
The last time Joseph Francis sold a beauty salon, he hired a broker and paid a fee.
This time, he passed on the broker and enlisted a new partner to help sell his business — Craigslist.
A 46-year-old Los Angeles transplant with 25 years experience in the salon business, Francis paid a hefty commission in the early 2000s when he sold a salon. Now, crunched by Southern Nevada’s crumbled economy, Francis said he would rather try doing the job himself using the free online listings site.
Francis hopes to use money from the sale to open another shop.
“I think a lot of people are trying to avoid the commission,” Francis said. “Craigslist is free. ... This is a different economic time.”
But experts caution people against selling businesses through Craigslist. Informal negotiations could turn disastrous.
“Craigslist is the wild, wild west,” said Ira Victor, forensic analyst and Internet fraud expert with Reno-based Data Clone Labs Inc.
Business brokers typically charge between 10 and 15 percent commission on the sale of a company. That means if a business sells for $100,000, the seller could pay as much as $15,000 to a broker.
Using Craigslist to avoid fees might sound like an odd tactic, but it's not uncommon. The Las Vegas Craigslist page lists hundreds of businesses for sale.
There’s an ATM business: 86 money machines spread out across the valley for $450,000. The owner claims he made $180,000 a year. He says he wants to sell because he plans to move out of state.
And a pizzeria in Summerlin for $235,000. The seller says the listing was spurred by a recent death in the family. The owner projects the 2,200-square-foot shop will make $600,000 this year and offers to finance the purchase for $135,000 down.
On the lower end price-wise, an ice cream truck is listed for $15,000.
Like many others, Francis hopped on Craigslist because it’s free. He kept his post simple and was short on financial details.
“BEAUTY SALON FOR SALE,” his ad headline reads, “3800 SQ FT.”
His asking price: $75,000.
The ad showcases a gallery of pictures taken inside Francis' Self Expressions Salon, on the 2300 block of South Rainbow Boulevard, and includes a list of equipment Francis plans to sell with the shop. The hair styling stations, shampoo bowls and dryers account for the bulk of the price tag.
Rent, which Francis would not disclose, is not specified in the ad and is not included in the sales price.
Many prospective buyers have called about the ad. A few made appointments with Francis and visited the salon. But Francis hasn’t been able to secure a deal he’s happy with.
“I’m trying to get the (biggest) bottom line,” Francis said.
The ad was posted May 24.
One pitfall of selling a business on Craigslist is buyers' propensity to bargain.
Just ask Andrea Keleman. The 42-year-old Hungarian has been trying to sell her Summerlin market, Rancho Mini Mart, on Craigslist since May 31.
Keleman moved to Las Vegas three years ago with her family and opened the convenience store with her husband. The space wasn’t built to house a convenience store, so the couple spent a good deal of money to transform the space.
But the business didn’t bring in as much as they had hoped, and Keleman found it difficult to balance responsibilities at the store with her full-time job as a real estate agent. After her husband got a job offer elsewhere, the couple decided it was time to sell.
A few folks from Craigslist have contacted Keleman, but none has been willing to pay the $85,000 she is asking.
“I’m not surprised,” Keleman said.
Keleman doesn’t blame them; she’d try to bargain, too, if she were in their position.
That’s where a broker can come in handy, said Matt DiGeronimo, senior managing director of Honolulu-based Smith Floyd Mergers and Acquisitions, which specializes in selling businesses.
“You’re getting a different buyer on Craigslist,” DiGeronimo said. “Let’s face it: if I see a business on Craigslist for $80,000, I’m probably going to offer $45,000.”
Much like a real estate agent, a business broker’s job is to match sellers and buyers. Most have access to a pool of buyers. So unlike sellers who have to wait for buyers to appear on Craigslist, brokers can go right to the source.
Brokers also can negate potential sticking points in deals, said Albert Kovacs, a corporate attorney with Brownstein Hyatt Farber Schreck.
The first is confidentiality. Craigslist ads are visible to everyone, including customers and competitors.
“Customers concerned about a change in ownership or management may look for alternatives,” Kovacs said. “And competitors may use the information to try to lure customers away.”
Confidentiality agreements can be vital in negotiations. Proprietary information, such as trade secrets and customer lists, often are included in sales packages. But you don’t want to accidentally give away the keys to the kingdom, DiGeronimo said.
Then there’s deal structuring, which takes research and attention, especially if financing is involved.
Launching a sale through Craigslist often leads to a informal transaction, in which neither the buyer nor seller is aware of the various ways to structure a deal. Weak, under-researched deals could have severe tax and liability consequences, Kovacs said.
Brokers target the right prospective bidders, evaluate incoming bids and understand how to prepare businesses for sale.
Brokers often go through hundreds of inquires before nailing down a deal, DiGeronimo said. Craigslist sellers could run the risk of becoming enamored with the first bidder who talks a good game.
“There is a lot of emotion involved,” DiGeronimo said. “If you go through Craigslist, you’re underestimating what you built.”
While she doesn’t put much faith in Craigslist, Randi Thompson says that if someone is going to sell a business online, there’s a right way to do it. As director of Nevada’s National Federation of Independent Business, Thompson frequently reminds business owners and buyers about the importance of doing their homework.
“When I think of Craigslist, I think of scammers,” Thompson said. “There is not a lot of credibility.”
Before selling, business owners should make sure their building is up to code and there aren’t any outstanding liabilities attached to the business.
Brokers and realtors often are sued for failure to disclose information. Just because a seller decides to use Craigslist doesn’t mean he can’t be held liable for similar withholdings.
Craigslist is perhaps a better tool for people thinking about buying a business than selling one, Thompson said. The site offers a good broad study of the market.
“For the savvy buyer, this is a fine way to see what’s out there,” Thompson said. “You just have to be careful.”
Even despite the risks, Thompson said she understands why people choose the Craigslist route to save cash.
“Profit is a rarity these days in small business,” Thompson said. “It’s a great way for people to take control of their destinies.”