What is a Business Broker & What Do They Do?

Selling your business is a major decision – but it’s the following question that is usually the most daunting.

How do I sell my business for maximum value in a timely fashion?

That’s no small challenge. Business owners understand how to sell their products and services, yet selling a company is an entirely different (and quite complex) proposition. Valuing your business, finding qualified buyers, and negotiating the best price – all while still running your company – is an exceedingly difficult task.

That is, unless you hire a business broker.

What is a Business Broker?

A business broker is a trained professional who helps people buy and sell businesses. Brokers act as a middleman between buyers and sellers, helping to facilitate deals in the most seamless fashion possible.

If you’re looking to buy a business, a broker will help you identify opportunities that best fit your parameters (cost, location, industry, etc.). If you’re a private seller, a broker will help you market and value your business, identify qualified buyers, and conclude a sale.

Because brokers dedicate their careers to filling this intermediary role, they are ideally positioned to match buyers and sellers. This expertise and insight can help buyers and sellers close their deals faster, on their preferred terms.

What Does a Business Broker Charge?

Business brokers typically earn a commission when the business sells which is generally pegged to the value of the sale. The broker’s commission may vary depending on the nature of the transaction, the specific agent involved, or the state in which the transaction occurs. Some brokers may also charge an up-front fee which is usually credited against the back-end commission earned at closing.

While some of these commissions and fees may seem high, it’s important to remember that brokering a sale is a complex process with a multitude of moving parts. It can be exceedingly difficult for business owners to oversee all aspects of a transaction while simultaneously running their businesses.

What is the Role of a Business Broker When It Comes to Buying and Selling a Business?

Brokers wear numerous hats during the sales process. Some of the most common functions a broker serves include:

  • Screening Potential Buyers & Businesses– Not every buyer has the wherewithal to complete a transaction, and not every business is willing to provide a full account of its finances. Using a broker can help weed out prospective buyers and sellers who aren’t serious or may have something to hide. This can mitigate the risk of a bad transaction considerably.
  • Establishing Valuations– Brokers understand what buyers are looking for and can help sellers emphasize the key value propositions of their businesses. They also have a deep understanding of market dynamics and access to hard transaction data that can be used to arrive at a fair valuation.
  • Negotiating– Not every business owner is a skilled negotiator. Business brokers, on the other hand, know how to drive the best bargain. A business owner who chooses not to work with a broker may end up leaving a substantial amount of money on the table by neglecting to push, or by failing to generate enough interest to engage multiple bidders.
  • Speed and Compliance– Few business owners are experts when it comes to the rules and regulations that govern transactions. Brokers, on the other hand, are a valuable source of information about permitting, licensing, escrow, and other key transactional issues. Additionally, selling a business creates a substantial trail of paperwork – and one missed document can sidetrack the sales process. Brokers know how the process works and can help ensure that deals come to a speedy and successful conclusion.
  • Evening the Playing Field– Business buyers typically have a long record of past transactions. This gives them a considerable advantage over many sellers, who often have no prior experience. Working with a business broker can eliminate this disparity.

Does a Business Broker Need a License?

The answer is maybe, depending on where you reside. These following states require licensing:

  • Arizona
  • California
  • Colorado
  • Florida
  • Georgia
  • Idaho
  • Illinois
  • Minnesota
  • Nebraska
  • Nevada
  • Oregon
  • Rhode Island
  • South Dakota
  • Utah
  • Wisconsin
  • Wyoming

All other U.S. states maintain no formal licensing requirement for business brokers.

Should I Work with a Business Broker?

For most sellers, the answer is yes. Unless a business owner is a former broker or mergers and acquisitions (M&A) professional, it is unlikely that the owner has the requisite skills and experience to strike and close the best deal in the shortest possible timeframe.

Choosing the right broker, however, is just as critical.

VR New Haven is a trusted business brokerage firm in CT. We’re one of the most active and successful business brokers in the northeastern United States. If you’re looking for the best way to sell a business or want to buy a company, VR New Haven is here to help.

Please visit our website to schedule a confidential, no obligation consultation and learn how VR New Haven helps sellers maximize the value of their businesses.

2019-06-19T14:27:07+00:00