What do business brokers do?

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It is estimated that there are approximately 3,000 business brokers in the US.  Given this relatively small number, many people are unaware of what business brokers do.  Business brokers serve as intermediaries who facilitate the sale of small-medium sized privately held businesses.

 

What services are provided?

  • Develops Broker’s Evaluation of Value and assists client with establishing a selling price
  • Develop the confidential business review, which is an outline of the business for potential buyers. This is the cornerstone of the marketing of the business, and will only be provided to prospects after they have signed a non-disclosure agreement (NDA) and have been qualified by the buyer.
  • Market the business locally and nationally while maintaining confidentiality.
  • Set up meeting between qualified buyers and sellers
  • Facilitate meeting between buyers and sellers
  • Prepare offer to purchase for buyer.
  • Serve as an intermediary during the negotiation process after an offer has been made. This can be a very sensitive time for both parties.
  • Facilitate the due diligence process. Offers are almost always contingent upon further examination of the business and business records, a process known as due diligence.
  • Assist buyer in obtaining financing
  • Schedule and facilitate the closing process
  • In some cases they provide consulting services for a fee

Is Licensing Required?

While business brokers operate in a similar fashion to real estate agents, business brokers focus on the sale of businesses and not real estate.  In cases where the business owns real estate, the business broker will need to be a licensed real estate agent or work with one to handle the real estate portion of the transaction.  Currently, there are 17 states that require business brokers to be licensed by the real estate licensing commission: Alaska, Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Minnesota, Nebraska, Nevada, Oregon, South Dakota, Utah, Washington, Wisconsin, and Wyoming [1].  This list is changes frequently so check with your particular state.

Whom Do They Represent?

While traditionally business brokers have represented the seller, it is becoming more common for them to represent buyers.  Some states allow the broker to represent both buyer and seller if both parties agree, called dual agency; and in some states, brokers can act as a transaction broker,  In both of these cases, the broker has the same obligation to each party.

 What qualifications do they have and what training do they undergo?

A business background is important to be a successful business broker.   Typically, brokers have years of business experience and/or a business education.  Some of the skills they need are sales, accounting and financial analysis, with an emphasis on communication skills.

There are numerous training programs available.  Several professional organizations offer training programs for business brokers.    The American Business Broker Association offers a training seminar several times per year.   Other online training can be found with a quick search, but caution should be used and research should be done to verify they are reputable,

The American Business Broker Association awards the Accredited Business Intermediary (ABI) credential to its members.  The International Business Broker Association awards the Certified Business Intermediary designation.  These designations allow you to have confidence that you are dealing with a qualified and reputable broker.  In addition, some states offer their own credentialing to qualified members.

How Are They Compensated?

Compensation for brokers has traditionally been commission paid by the seller at closing.  Some brokers have moved to a partial up-front fee, with the fee usually credited against commission.  This helps brokers defray the marketing costs associated with listing and selling the business and helps to identify serious sellers.

A survey of business brokers conducted in 2015 showed that 86% of the respondents reported they charge 8-12% commission for Main Street businesses (less than $5 Million in revenues annually), with 10% the most common.   Two additional notes: Generally, the smaller the business, the higher the percentage rate of commission, and some very small businesses may be sold on a minimum fee basis.

[1] https://businessbrokeragepress.com/industry-resources/state-licensing/

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