What is a business broker?
A business broker is an individual or company that assists in the purchase and sale of main street businesses in the lower middle market. These agents can take on a variety of tasks to help their clients achieve their acquisition or exit objectives. Some may specialize in companies belonging to specific industries or possessing specific, unique characteristics.
Understanding the value of a business broker
Buying and selling businesses is no easy task. It is often a lengthy process that can take 6 – 12 months to complete. There are many challenges that exist along the way.
In the beginning, establishing a fair market valuation that meets the seller’s expectations can be tricky when the seller wants way more than what the market is willing to pay. After a price is agreed upon, the business broker will usually have to work with the seller to prepare the business for sale. This includes a complete financial review of accounting records, building out marketing materials to promote the business, and creating a target buyer list. When interested buyers come to the table, it is the broker’s job to solicit NDA’s in order to keep all information confidential. With each interested buyer comes dozens of questions about the business that the broker needs to know off hand. Deals die if there is too much delay in communication. After offers are submitted the negotiation phase kicks in and it’s up to the broker to use their expertise to get a deal done that is in the best interest of their client.
Business brokers are compensated based on a success fee of the overall sale price. Usually, the percentage ranges somewhere between 5 – 10%. For this reason, brokers need to have a high-risk tolerance as they put in a lot of work upfront only to be paid if the deal goes through after months of working for free.
5 reasons to get a business broker:
- Find the right buyer: When a business owner is ready to sell it is often a big challenge to find a buyer. In some cases, they may already have a supplier, competitor, or person in their network willing to submit an offer. More often than not, there will usually be a better offer waiting in the open market that a broker can tap into.
- Specialized deal knowledge: Business brokers know the transaction process inside and out. This becomes extremely valuable when something comes up that might spook the buyer away. Brokers use their experience to come up with creative solutions to keep the deal going forward, something that takes many reps to master.
- Extensive network: An experienced broker will have worked with numerous attorneys, accountants, business owners, investors, buyers, lenders, and banks to utilize throughout the transaction process. This can save costs and reduce the risks of potential issues down the road.
- Maximize Exit Value: Business brokers get compensated based on a percentage of what the business sells for. Therefore, it is in their best interest to get a seller’s the highest value possible at exit. They know the specific drivers to increase valuations and help best position the business to reflect value drivers for buyers.
- Avoid negotiation: After all, your business is your baby – you spend more time working on it than you do your family at times. So, when the time comes to sell and a buyer is trying to tell you your business is worth less than your asking price, it can become an emotional rollercoaster. Having a business broker can help keep you far removed from the negotiation process to help keep your head clear for you to continue focusing on successfully managing your business.