A business broker is a trained professional who helps people buy and sell businesses. Depending on the state, a business broker may possess a license to broker. Business brokers will estimate the value of a business, advertise it, and conduct interviews with potential buyers.
If you’ve ever bought or sold a home, then chances are you’ve worked with a real estate agent. You can think of a broker’s role being very similar to a real estate agent, only the broker is helping you buy or sell a business, which is a much more complex endeavor.
Brokers can play a very valuable role in the process as they provide guidance, advice, and other resources that you may need to make the transaction happen. Business brokers typically have years of training and experience in buying and selling small to medium sized businesses and therefore can provide you expert guidance that can save you precious time and money. Brokers are well connected with finance professionals, accountants, attorneys, and other professionals who may be needed to facilitate the sale. For sellers, business brokers can put together the marketing package, help determine the appropriate price for the business, and do all the leg work necessary to market the business for sale. Even before the business is put on the market, brokers can provide very useful advice to properly prepare the business for sale. All of these services the broker performs, allows the business owner to stay focused on what they do best — running their business. For the buyers, a broker can present to them motivated sellers and opportunities that meet their particular skills set, passions, and financial objectives or goals.
Brokers typically work on a commission basis — generally the commission is 10% of the sales price of the business (note this can vary) — this commission is typically paid by the seller (as it is in the real estate arena).
Business Broker Commissions
Business Brokers set the rate to charge for their firms, but they seem to stay pretty much the same. Ten percent (10%) is the normal rate, but it can be higher or lower depending on the individual brokerage or the type of business being sold. This fee is based on the total purchase price and is paid to the Broker at Closing. The Listing Agreement For The Exclusive Right To Sell signed by the seller will explain the fee in detail.
Because of the time and expense involved in going through financial statements and other information to prepare a marketing package and place a value on the business and to assist the seller in determining a fair asking price, along with confidential marketing and other expenses, some Business Brokers charge an upfront fee. This will vary according to the Business Broker and is usually deducted from the commission paid at Closing. Because there is no guarantee a business will sell, some Brokers choose to charge nothing for their services until they have successfully sold the business. They take a chance of doing lots of work for no pay but believe they should not list a business unless they feel confident it will sell. Most Business Brokers will co-broker with another Business Broker who understands the importance of confidentiality. That will cost the seller nothing extra, as the commission you pay your Business Broker will be shared with the other Broker.
3 Tips for Hiring a Broker
Like any profession, there are good brokers and “not so good” brokers. In terms of picking a broker, here are some basic tips that may help you:
– Interview 3 to 4 brokers — meet with them face-to-face – chat with them about their experience, training, areas of expertise, their rates, their connections with other professionals in the industry, etc.
– Ask for references — if he or she is a good broker, they will, for sure, have pleased customers who would be willing to provide a testimonial of their good work.
– Review their resume and credentials — some questions to consider: how long have they been a broker, do they have any professional certifications (one to look for is the CBI designation – this stands for Certified Business Intermediary – earned after completing courses and exam by International Business Brokerage Association), do they specialize in a particular industry, how many total transactions have they done, etc.
To find brokers near you who might be able to help you out – visit BusinessBroker.net’s Business Broker Directory.
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