Business Brokers


In this specific article we are going to focus on business brokers and how you can use these entities and individuals in order to further your operations as relates to the acquisition of existing businesses. Much like real estate agents and real estate brokers, business brokers operate in a similar capacity within finding listings for sale among the business owners are looking to sell their business to a third party for ways significant price-to-earnings multiple. These business brokers work closely with the business owner in order to produce a valuation for the business that can currently showcasing the business to potential buyers to quickly sell can be made. As for the compensation that is received by business brokers, the most common type of compensation is directly based on whether or not the specific business broker is able to effectively make a sale on behalf of their client. Especially as it relates to small business sales, most business brokers charge a fee equal to 8% to 12% of the face value of the transaction. In this article, we're going to discuss all the issues as it pertains to working with the business broker as you sell your business or if you looking to buy a business to an acquisition.

 

As we discussed in our previous article relating to business acquisition financing, chances are that you are going to work directly with a seller broker as well as your business broker as you progress through your searching for a business that is appropriate for you to purchase. Many of the issues that come to light when working with a real estate brokerage, it is the best interest of both the high your business broker as well as the seller business broker to have the highest price possible for the transaction in order for both brokerage parties to make as much money as possible the transaction. This is one of the conflicts of interest that will discussed time and time again as it relates to working with business brokers. However, it should be noted that working with the business broker may be in your best interest so that you can quickly find the appropriate listings for sale that match your criteria as it pertains to the type of business that you're looking to acquire yourself.

 

In regards to legislation and registration of business brokers, many states have enacted laws that required business brokerage firms to hold specific licensure that is very similar to that of a real estate broker. In fact, some states have simply allowed these brokers to operate within the industry that they do in regards to acting as a business intermediary simply by acquiring a real estate agency license or real estate broker license. Towards the differentiation between an agent and broker, many circumstances, an agent is defined as an individual that works for brokerage firm while a licensed broker is someone that is licensed to operate a business brokerage. If you decide to work with business brokers, for your business acquisition activities, we strongly recommend that you review your state's legislation and laws as it pertains to ensuring that the individual or firm that you're working with is appropriately licensed to activate this is broker capacity. Much like our previous discussions, as it has pertaining to working with commercial loan brokers, ensuring that the business brokers that you're working with are properly licensed within the state in which you will all resign and ensure that it is working with a trusted provider of these services.

 

As it specifically relates to the services that business brokers offer, the menu of available services include valuation services, and business search services. For the most, as it relates to the acquisition of new businesses, your business broker will be able to properly advise you on how the transaction can take place while concurrently negotiating on your behalf for the best price possible as well as the best terms possible as it relates to the sales price as well as seller financing that you receive when you acquire a new business concern. This is especially true if you are seeking to acquire a small business. As part of most business transactions, most small businesses generating a seller financed note that allows you to more effectively receive the financing they need in order to acquire the business that they have found. These business brokers will be able to effectively negotiate the amount of the loan that a seller is willing to carry back as the seller financed note as far as negotiating the best possible for this specific type of financing as it relates to your initial and ongoing acquisition of businesses. In addition to acting in a negotiating capacity on your behalf, as it relates to the acquisition of the business, the business brokers that you work with the also negotiate the best price possible for your business. Additionally, these brokers often act as a liaison between you and the seller of the business, but also among the varying parties that will be involved with the transaction. Your business broker will not only work with you as well as a seller of the business but also with the financing team in regards to the acquisition, certified public account firms, business valuation firms, law firms, and other entities that will give you the diligence that is associated with the acquisition of the business. Regardless of the size of the transaction, all the necessary steps that are required in order for you to acquire the business that you are seeking are absolutely necessary. This is true if you were buying a small but hundred thousand dollar valued retail store in a small town or a $10 million large-scale manufacturing business in a large city. In regards to your acquisition, there should be no differentiation between acquiring a small business or hiring a large company.

 

On a side note, there discuss the conflicts of interest that you will face when working with business brokers. Much like we stated above, this is brokers operate a very similar capacity to the that as a real estate agent and that they're looking to quickly make a sale on a business or to receive a substantial commission for their work. Again, most business brokers charge a fee that is equal anywhere from 8% to 12% of the face value of the transaction depending on the specific type of business and the complexity involved with the deal. Additionally, in potentially working with brokers, as you progress through your business sales and business purchase operations, you may instead work with a merges and acquisitions focused investment bank that typically handles larger transactions. For instance, if a business that has a value in excess of $5 million but it may be in your best interest to work with investment bank rather than the individual business broker. This is primarily due to the fact that most business brokers become somewhat of an independent basis as it relates to their business operations. However, a mergers and acquisitions focused investment bank typically plays a number of people that are specialized in a number of specific industries as it relates to completing due diligence, finding buyers for businesses that are for sale, and working with sellers of businesses that are looking to divest their business the highest price possible. Again, the primary conflict of interest that comes with working with business brokers as well as investment firms that specialize in mergers and acquisitions is that the commission is directly based on the sales price of the business. As such, if you are in the market to purchase a business, and you're working with a business broker, you need to be aware that your business brokers’ interest primarily lies in receiving the highest commission possible and not seeking the best deal possible. However, the business brokers that specialize in working with buyers typically are willing to receive a lower commission in order to solidify the reputation as a business that focuses on providing the best possible service among individuals that are looking to acquire existing business. As such, prior to working with any business broker, you should always be what you're appropriate diligence as it pertains to the specific business broker that you're working with to make sure that you're working with a skilled negotiator that has an extensive amount of knowledge as it pertains to the specific businesses that you're looking to purpose as well is that industries that you can operate within.

 

In addition to the review of the previous actions have included being completed by the business broker that you intend to work with, you should also check references among business buyers and business sellers that have worked with the specific business brokerage firm that you intend to work. In doing so, you will ensure that your business brokers are working on your best to have as it relates to the ongoing sale of your business for the search of business listings that pertaining to the specific criteria that you have set out as you intend to complete a business acquisition. Time and time again, we'll continue to focus on the conflicts of interest that come with working knowledge of business brokers but with business loan brokers and commercial loan brokers as well.

 

Of course, you can effectively acquire business without these of the business broker should you choose to do so. However, it should be noted that your access to collect information from people that are selling businesses will be highly limited as you will need to complete the due diligence process each time they find a potential business for sell. One of the best aspects of working with business brokers is that they are able to effectively provide you with all due diligence that you need on an ongoing basis for each business that you're interested in acquiring. Every time a selling business broker markets a business for sale, typically, there is already been to diligence completed in regards to preparing the years of the tax returns the currently having a third-party complete a business valuation so that any potential buyer can review this information quickly and ascertain as to whether or not the business they're looking at is a good acquisition candidate.

 

As such, these brokers will not spend a tremendous amount of time but they also spend a tremendous amount of money as it pertains to obtaining third-party reports so that you can complete the diligence that is needed when determining whether or not to purchase a specific business. One of the other tremendous benefits received by working with a business broker, as it relates to buying a business, is that you will be able to very quickly aggregate a list of businesses and the criteria that you have set forth as it pertains to your business acquisition operations. With the advent of the Internet, business brokers are now able to quickly source listings in any state, any city, were in the small town that need to meet the financial expectations and geographic location in which you are looking to purchase business. Additionally, many business brokers are now willing to work with others in the field in order to more quickly affect transactions as it pertains to the acquisition of business is on behalf of business buyers. This is primarily due to the fact that the business brokerage industry has split into two camps. The first, there are selling business brokers that work directly with individuals that owned businesses that are looking to divest them to third parties. Second, the business brokers that specifically work with business buyers that are seeking specific businesses within specific geographic regions, generate a specific amount of profit, and have certain pricing range. Additionally, many business brokers have also developed business financing arms as it relates to business acquisition financing. As such, when looking to work with business brokers as it pertains the acquisition of the business you will not only be able to quickly find the businesses that are suitable candidates for purchase, you'll also be able to work directly with the business broker or as it pertains to receiving financing that you need in order to acquire the business that is for sale. Of course, all these services that have been listed come at a significant price. In many instances, the individual who was purchasing a business providing cover any costs outside of closing costs as it relates to legal fees, the diligence fees, accounting fees, and closing costs as it relates to obtaining the necessary financing in order for you to complete the transaction. If you're looking for sell your business, anticipate that business brokers, again, will charge you a fee equal to anywhere from 8% to 12% of the face value of the transaction depending on the size of the business that you owe. In some instances, especially for really large businesses, these fees typically operate on a sliding scale so that there is a 5% cap on any transactions that exceed a certain dollar amount. Of course, prior to engaging any type of business brokerage firm, you should be provided with any agency agreement that very clearly showcase any anticipated fees at work are not only up front as it relates to marketing a business for sale but also as a contingency basis is for your particular business broker.

 

Returning to our discussion as it relates the downside of working with business brokers, again, the conflict of interest that exist within the agency principal agreement are tremendous. This, again, is primarily attributed to the fact that this is brokers by merely receive their compensation based upon the face value of the transaction. As such, business brokers, the higher the value of the transaction the more money they will ultimately make. This is especially important to note among individuals are working with business brokers that are working on their behalf when sourcing potential candidates for the purchase of the business. Like real estate transactions, the fees that are associated with finding a business for you, often split between the selling broker and the buying broker. As such, you need to make sure that you're working with a firm that has a clear understanding of the fact that they need to work on your best path as it relates to finding the best business suitable for you while concurrently working at best interest during the negotiation and diligence. Again, this can be quickly verified by speaking with individuals and business owners that have used your specific business broker as it relates to you the acquisition of businesses. Additionally, you should only work with the business broker that has had an extensive amount of experience in regards to the industry in which was purchasing a business. Much like any professional practice, these brokers typically have a specialized niche it work with on an ongoing basis. For instance, there are business pokers that only deal with professional practices, restaurants, healthcare companies,  manufacturing firms, and every other type of business imaginable as it relates to this specific focus of their practice. However, for smaller businesses, the trend is that brokers operate in a more general capacity where they are willing to work with any buyer or seller as it pertains to business acquisitions and divestitures. For larger business transactions, you may come across the fact that you're working with is a mergers and acquisitions focused investment bank. Among these specific financial institutions, you can most certainly anticipate that they will have a specific focus in any industry genre niche as this is one of the ways that these firms differentiate themselves from other business brokers in the market. Again, the primary difference between business brokers and investment bankers, as it relates to business acquisitions, is that most investment banks typically only handle transactions that have a face value of $5 million-$10 million  or higher. Business brokers, on the other hand, typically handle smaller transactions that are less than $5 million. As you progress in the operations when screening business brokers the way potentially work with, you'll see that most independent business brokerage firms typically operate with any smaller geographical region, the state region, were a regional area rather than on a national basis. This is primarily due to the fact that these business broker firms have decided specifically to specialize in the sale and purchase of smaller businesses.

 

In this specific section of the article, we are going to focus on the terminology that is used among business brokers as it pertains to their ongoing operations. Foremost, you should be aware that some firms hold themselves out as business brokers other firms hold themselves out as mergers and acquisition specialists or investment bankers that specialized in acquisitions. Other firms will typically hold themselves out as these intermediaries. Again, these terms are typically interchangeable as it relates to their overall function pertaining to business brokering. Again, any firm that holds themselves out as a mergers and acquisitions focused investment bank typically handles transactions that are in excess of $5 million while business brokers or business intermediaries typically hold themselves out as firms to handle transactions that are less than $5 million. In most instances, you'll find that this is brokers typically work with firms that aren't selling their business but for a value of $250,000-$1 million. This is the most common case as it relates to working with the business broker for the divestiture or acquisition of a business that is for sale.

 

When you decide to work with these business brokers, it is imperative that the selling broker or the buying broker provide you with any third-party evaluation of the business that you intend to acquire. This third party, usually a business valuation specialist who worked certified business appraiser, who is a completely disinterested party that seeks to provide you and the other parties involved in the specific transaction that you looking to complete a formal valuation of the income, cash flow, assets, and balance sheet of the business that you intend to acquire. These specific individuals and firms are bound by a myriad of state laws and professional obligations as it relates to providing you with an in-depth analysis of the business that you intend to acquire. These firms, often employed certified public accountants that directly determine to the free market valuation of the business that you intend to acquire. As to our previous discussion, relating to business acquisition financing, these firms will assist you, your business brokers, the seller, and all other parties that are involved in this transaction and ensuring that the best possible price is reached as you progress through the negotiation period. As will be continue to discuss to our series of articles as relates to working with business brokers and completing business acquisitions, will continue to focus on the specific key points that he can it be made aware of as you complete your diligence periods especially in regards to completing a business valuation.

 

At the time of this writing, there are approximately 5,000 individuals that hold themselves out as business brokers. Some of these individuals have entered the market for the past three years to meet massive downfall in the valuation of real estate in the United States. As such, and with minimal regulation that is involved as it pertains to working with business brokers, you need to make sure that the specific expertise for the individual that you're working with is a ultimately be getting paid business broker. Again, in many states that require licensure for business brokers, the necessary requirement is that they simply that they passed the real estate agency passed in order to obtain their licensure to act any business brokerage capacity. As such, you can quickly see that working with business brokers at have only obtained the real estate agency licensure so that they can act as capacity do not have the direct experience is required in order to effectively provide you with the device as it pertains to selling a business or buying a business. The issues that arise from purchasing a business, especially through the usage of business brokers, are far more expensive than simply selling a piece of real estate. This is primarily due to the fact that there are substantially more complex issues as it relates to accounting, legal issues, seller financing, bank financing, and contingencies that are put in place as you progress through your business selling business buying operations. As such, you should make sure that the business broker that you're working with is truly specialize in being able to make a determination as to which businesses are best candidates for you as you look to sell your business work in regards to buying a business which businesses are being your best interest as relates to spite specific criteria that you have laid out as income needs and geographic location in which you intend to conduct your business operations. In doing so, you'll make sure that you save yourself a tremendous amount of headache as it pertains to working with business brokers. It should be noted, that recently a number of states have enacted new legislation work pending legislation that will forever regulate the industry as it pertains to business brokering. In fact, some states have done away with the notion of solely of ensuring that a business broker has the real estate agency license but rather a business brokering license so that consumers, business buyers, and business sellers are aware of the fact that the specific firm that they're working with has a specific knowledge of business acquisitions and business sales. This is especially true, among business brokerage firms that offer business financing acquisition applications as well as being able to support small business administration loans.

 

As you search through the Internet for business listings on your own or searching for business brokers that you intend to work with you may notice that a number of these individuals now he very quickly prequalified business that is for sale with the small business administration. This ensures that any time that you approach a particular business for sale that you can be immediately aware of the fact as to whether or not that he would qualify for the acquisition of the small business administration loan as a relates to the acquisition of the business they were seeking to purchase.

 

The common trends among business brokers, given the current economic climate, this act in a one-stop shop capacity as it provides two services relating to the only buying the business, selling a business, business valuation, and obtaining the appropriate financing in order for you to acquire or divest your business or acquire a business to a third-party. However, this wrap up of the industry does not necessarily in the best interest of either business sellers or business buyers. This, again, relates specifically to the issues that pertain to the conflicts of interest that are place as it relates to effect the transaction through a business intermediary. This is true on both sides of the equation as it relates to selling a business or buying a business. In regards to buying a business, especially for using a business broker, they should not be involved in the transaction as it relates to placing an appropriate valuation on the basis that you're looking to acquire.

 

Additionally, business brokers that specialize in working with buyers should not also receive additional compensation for placing financing on your behalf. However this is not always the case as business brokers are able to effectively obtain the debt and equity financing that you may need when acquirement business from a third-party. However, need to be careful anytime that you work with the firm back in a multifaceted capacity as it relates to your business buying activities. The same is true of your working with business brokers as it pertains to selling your business to a third party for a significant premium earnings multiple. Again, any time that a business valuation is an undertaken the business broker should not complete this transaction on your behalf so that the report is as objective as possible. Additionally, you should work with a certified public accountant when determining the types of seller financing that you intend to provide to the perspective business buyer. Many business brokers, especially as it relates to sell side business brokers, who seek to provide a tremendous amount of financing for the candidate buyer so that the transaction can be completed more quickly. As such, having qualified advice from a certified public accountant as well as an attorney will ensure that the business brokers working in your best interest so that you receive the maximum value for your business. The same holds true if you intend to purchase a business from a third-party having appropriate counsel will allow you to determine what the fair market value for the business while concurrently providing you with advice as it relates to the intelligence process.

 

In short, working with business brokers can be an excellent way of quickly affecting the transaction as it relates to the sale of the business through the acquisition of the business. However, it should be noted that with the advent of the Internet, there are a number of different portals that you can use in order to test the waters prior to engaging business brokers to assist you with selling your business or buying a business. Popular Internet portals that specialize in the sales of business include BizBuySell.com, BusinessBrokers.net, as well as many others even find through a simple search engines query search. As such, before engaging any major transaction we fully encourage you to complete all the appropriate diligence with any individual that is holding themselves out as a business intermediary. Of course, it without saying, but also attain the appropriate accounting counsel as well as legal counsel that will assist you through the very complex due diligence process that you need to undertake when determining the fair market value of your business if you are selling or company for the fair market value of the business you intend to acquire. In a number of different articles we are to continue our discussions as it relates to business sales and acquisitions while focusing on issues that pertain to working with business brokers in order to engage these types of transactions.


Testimonials  Complete Business Plans  Raise Capital  FAQ  Articles and Blog  Contact Us  Terms of Use and Privacy Policy