What Is a Business Broker
A business broker is a broker specializing in business transactions
What is a business broker? Simply put, a business broker works as a broker in business transactions. They act as intermediaries between buyer and seller to facilitate a smooth business sale. Also known as a business intermediary, it is their job to manage the transaction and all of its components. This requires the broker to ‘wear many hats’ and serve many different roles. To be effective in these roles, the broker must have a broad understanding of many different fields.
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Business brokers are trained professionals
Business intermediaries are trained professionals with a broad knowledge and skill base. Selling a business is a complex process involving experts from many fields, and the broker needs to have a basic understanding of these fields. In most deals, a broker will interact with attorneys, accountants, bankers, and financial advisors. A broker needs a basic understanding of law, finance, accounting, and financial planning. As the person managing the transaction, it is important the business intermiary understand how all the pieces of a transaction work together.
A broker must also have a deep understanding of business sales. This knowledge ranges from knowing how to value a business all the way to how to close a deal. They also need to understand business buyers. What characteristics does a buyer look for? What things will kill a deal or force a buyer lose interest in a business? By knowing these things, a broker can better prepare a business for a sale. It also helps the broker set realistic expectations with the business owners.
Lastly, a broker needs to know how to manage a business transaction. This requires strong communication skills and the ability to deal with all personality types. A broker needs a process and systems to keep all parties moving in the right direction. They also need to be able to adapt on the fly and problem solve the unexpected issues that must be addressed.
A business broker has a process for selling a business in a discreet manner
It can take anywhere from 3 months to 2 years to sell a business. The entire time, it is important to keep the potential sale as discreet as possible. Because confidentiality is key, a thorough process needs to be followed. If the wrong parties find out about the sale at the wrong time, it can impact the value and ability for a business to sell.
A broker works with a business owner throughout the entire business sale process. They start by helping the owner get the business ready for sale. The first step is interviewing the owner to identify the owner’s business sale goals and priorities. With these goals in mind, the broker then determines the value of the business and realistic sale terms. Lastly, the broker performs pre-sale due diligence to find and fix any potential issues that would hinder the ability to get a business sold.
Once the business is ready for sale, a broker focuses on marketing. The first step in marketing: take the business to market. With this, a marketing package is created for the business. They then find qualified buyers for the business and build interest. Often a broker will interact with 20 or more potential buyers on the journey to find the ‘right buyer’. Once the ‘right buyer’ is found the broker facilitates the negotiation between buyer and seller.
Once a business is under contract, the broker must then facilitate the due diligence process. A large amount of confidential information is shared during due diligence. The broker must have a secure process for the transfer of this information. They also must manage all parties to facilitate the drafting of the business sale documents. This involves working with each party’s attorneys and advisors to help the parties come to agreement.
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A business broker typically works as a transaction broker
In real estate, both the buyer and the seller have real estate brokers. This makes sense because real estate brokers have access to tools like the MLS and specialized marketing tools. Business intermediaries and broker typically work as transaction brokers. Transaction brokers represent the deal and serve as a neutral, trusted party to the both buyer and seller. They provide each party with the facts but do not act on one party’s interests. This is helpful because both buyer and seller typically work with an attorney who acts as a fiduciary.
Business intermediaries and brokers play a key role in successful business transactions
While it is possible to sell a business without the help of a business broker, it is challenging. Negotiating a business sale is a challenging process. Emotions and tensions are high. A simple conflict or disagreement between parties can kill a deal. It is much easier to resolve the conflict if there is an intermediary to serving as a cushion between the parties.
Brokers also play a key role in the marketing of a business. Without a broker, it is difficult to maintain anonymity in the business sale process. Owners who sell a business by themselves end up interacting with sellers directly. With the modern internet, a simple internet search will identify the business. By trying to save money on fees, a seller might lose substantially more due to employees or customers learning about the sale too early.
Most importantly, business intermediaries and brokers help a business owner get the best price and terms for the business. There are several types of business buyers, and often one buyer types will pay more for a business than another. Brokers have access to a variety of large pools of business buyers. They know which buyer pools will best fit business types and sizes and can market directly to those buyers.
If you would like to learn more about business brokers or the business sale process, we’d love to hear from you. Send us a message and we’ll be glad to help.