Understanding the role of a business broker
The basic job of a business broker is to find buyers for businesses that are for sale and to put deals together. Many brokers will tell you that finding the buyers is the easy part and putting the deal together is the hard part. Let’s face it, most of us have never sold or bought even one business in our lifetime. An individual with expertise in the process can be a very important asset to bringing the process to a successful conclusion. A good broker can be an invaluable asset in selling a business.
Ability to continue running your business
Selling a business takes a lot of a business owners’ time, even with the help of a broker. If your business relies on you for crucial functions, such as business strategy, sales, customer retention or operations and you begin to spend a lot of time on the process of selling the business, your sales and profits may grow more slowly, and your business’s competitiveness may deteriorate in other ways. Any decrease in business, or even in the business rate of growth may appear to be a red flag to a potential purchaser.
Selling the business itself is not a task that is easily delegated to an existing employee, so hiring a broker may be the best way to minimize disruptions to the business at a crucial time.
Know the process
Probably the best argument in favour of using a broker is that he or she simply knows how to sell a business. A broker has been through the process many times and knows the pitfalls and potential problems that can be encountered. He or she knows how to spot the strengths and weaknesses of a deal and knows how to capitalize on the strengths and minimize the weaknesses. Simply stated, the benefit is a good broker knows how to make a deal happen.
Protect confidentiality and screen prospects
Screening prospects is an important and difficult part of the selling process. A good broker knows how to screen the tyre kickers from the serious prospects. You must protect your private business details.
Data base and cross match
A good broker keeps a detailed record of every prospective buyer that has passed through the screening process. Such records will include the kind of business one is looking to buy in terms of type, size, geographic area etc. It is possible that a business broker will have one or more good prospects ready as soon as you list your company.
A business broker should have all the appropriate forms such as confidentiality agreements, offer to purchase forms etc. This could save a good amount of money in legal fees if the alternative is to have your lawyer draw up the forms.
Provides a range of services
A good business broker can help in valuing your business, putting together a presentation and providing other related services toward selling your business at the best possible market price.
Typical Broker Commissions
Brokers’ commissions can vary widely and often you get what you pay for. As a business owner you must evaluate not only whether the broker is offering you the cheapest commission, but also consider the probability that the broker will close the sale, the ability of the broker to get a good price, the amount of work that will be required from you, and the length of time that it will take from when you list until a sale is made.
For small businesses commissions they can be as high as a flat 10 or 12%. For larger businesses the commission goes down. A “typical” commission structure might be 10% of the first $1,000,000 and 5% of any amount over $1,000,000. If the sale is easy (for example a payroll company, which is usually a cookie cutter sale) the commission might look like this:
- 10% of the first $1,000,000
- Plus 5% of the second $1,000,000
- Plus 4% of the third $1,000,000
- Plus 3% of the fourth $1,000,000
- Plus 2% of the fifth $1,000,000
- Plus 1% of anything over $5,000,000