Business Brokerage SWOT Analysis
After many years of working hard, many successful business owners decide to sell their company in order to cash out the large amount of equity that they have built. Selling a business is drastically different than selling a piece of real estate. As such, business brokers are in constant demand. This is true in both strong and deleterious economic conditions. During times of economic recession, business brokers remain in demand given that some business owners need to divest assets for cash. The barriers to entry for a new business brokerage is very low. The startup costs for a new business brokerage can range from $10,000 to $50,000 in order to commence revenue generating operations.
Additionally, business brokers are able to generate income from three primary revenue streams. First, they able to generate profits from completing business valuations. Second, they can receive recurring fees from listing charges for marketing the business for sale (although some business brokers incur the cost on their own). Third, and most importantly, business brokers generate substantial fees from the sale of a business to a third party. For companies valued less than $1 million (the vast majority of businesses), the fees are usually 10% of the sale price.
The commissions generated by business brokerages are few and far between (with some exceptions). This is due to the fact that acquiring financing for a business is difficult. Additionally, both business owners and buyers frequently get cold feet about acquiring a new entrepreneurial venture. As such, a business brokerage needs to have enough capital on hand in order to make sure they are able to sustain operations in between receiving commissions.
For most business brokerages, the biggest opportunity is to establish operations in multiple states. This is generally the way that most business brokerages expand their operations. Additionally, some companies will hire associate brokers that work on behalf of the business for a commission split.
At this time, there are no known threats that would impact the way that a business brokerage operates. The primary threat that business brokerages needs to contend with are competitive and listing issues. However, once a strong listing is acquired - this risk is eliminated.
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