If you have never owned a business, you may not know what business brokers do and how they can help you. A business broker is somewhat similar to a realtor. Some states require business brokers to have real estate licenses, and most get licensed anyway so they can sell property and write leases. A large percentage of business owners lease a building for the operation of their business, rather than invest their capital into the purchase of a building.
How can a business broker help you and how do you find a good one? There are some qualities you look for and then you choose one you relate to and with whom you feel comfortable. It is easier for you to choose a broker to work with and let the broker help you find a business that suits your needs rather than call each broker who has a listing that sounds interesting to you. Brokers co-broker, so that will save you lots of time; and they will likely find businesses you would not find when searching on your own. I have never been comfortable charging an upfront fee to potential buyers, and I know some brokers do. My theory is that I should not list a business if I don’t think I can sell it, and I get paid by the seller at closing. The time and effort spent with potential buyers is part of the process and something I enjoy. Selling a business is very personal to the owner and the purchaser.
Before a business broker lists a business, an evaluation is done; and a marketing packet is prepared to present to prospective buyers. This will give the basic information about the business, including a cash flow statement for the previous three years. This will be given to prospective buyers who sign a confidentiality agreement, as business listings are confidential. Before a buyer signs a confidentiality agreement, enough information will be given to determine if the buyer has an interest in the business.
After a buyer reviews the marketing packet, the business broker will be available to answer any questions, request additional information from the seller, and schedule an appointment to meet with the seller, usually after hours at the business because of the confidentiality. This will give the buyer an opportunity to tour the business and ask questions. The broker can assist with the questions, if needed. It is good to have a list of questions to ask so that nothing will be forgotten. The broker will be present to assist if needed. Any probing questions may be asked except actual price negotiations. The offering price is part of the offer to purchase that will be written for the buyer by the broker if the decision is made to proceed, after which negotiations may take place.
When making the written offer through the business broker, all information provided is assumed to be correct; but includes contingencies which confirm such information. If outside financing is needed, the business broker can provide a list of sources and a contingency to receive financing by a certain date. If any contingencies are not met by the written date, the offer will be void.
Once a sales price is agreed upon and the offer is accepted, a period of due diligence confirms the validity of the offer. No information should be withheld from the buyer at this point. The buyer should look for any red flags in cash flow and any hidden problems. Although the business broker can guide a buyer through the process, he/she cannot give legal or accounting advice; so it is good to have an attorney and an accountant to answer questions or give advice. They can also give advice for selecting the best legal entity for the business. It is important to contact the owner of the building and get the lease, as sometimes this takes longer than expected.
For closing, it is usually advantageous for both the seller and buyer to have documents prepared by an escrow attorney, based upon the agreement signed by the buyer and seller. Both parties may then have the documents reviewed by their own attorneys, if they desire. After closing, the buyer receives the keys to the business and starts making money immediately. The buyer and seller meet with the employees at the business to explain the sale and assure them their jobs will remain the same. The sale is not disclosed to the employees, customers or anyone until after closing to prevent inaccurate information from getting out that could hurt the business. As part of the purchase agreement, the seller will work with and train the buyer for a determined amount of time and assist in an orderly transition. Suppliers will be notified of the change of ownership, utilities changed, licenses and permits changed, and a bank account opened if not done before closing. The business broker will guide the buyer through everything.
