Everything You Need to Know About Business Brokers
The term “broker” can refer to various professionals across a number of industries. Getting into specific types of brokers, such as a business broker, you can explore more about what they do and how they support their customers. Business brokers are known by many names, including business transfer agents, business intermediaries, and even business consultants. A business broker is an individual who acts as a cushion between a buyer and a seller during the sale of a business.
Typically, business brokers handle all aspects and stages of the business sale. However, a business broker can operate in additional capacities serving as an advisor or assistant to help prepare a business for sale or to support an owner with only specific steps in the process. What they do exactly and what purposes they serve go far beyond the surface-level explanation.
What Do Business Brokers Do?
Business brokers perform best in the critical stages of selling a business. These stages include preparing a business for sale before it goes to market, conducting a valuation on the company, establishing a sales price, marketing and advertising the business for sale, screening interested buyers, facilitating the due process, negotiating for a fair deal, and closing the deal with complete legal compliance. Business brokers customarily charge in the range of 8 to 12 percent of the final purchase price for their services.
Preparing the Business
The first stage involves preparing the business, which often starts by gathering documents and key information about the company. This step is not just presenting the annual tax documents. Business brokers should show an interest in your customer and product saturation, as well as your position in your industry.
Many owners will understand that there are options to make the company more desirable to present to the market. Some may choose to take the time to make changes, and others may need to move forward with greater urgency.
Conducting the Valuation
The valuation process may take a short time as the professional gives careful weight to every element of the business. A business broker will need to conduct various calculations after gathering all the required information and then determining which of those calculations best reflects the company’s market value.
Marketing and Advertising
When the company has a suitable sale price, business brokers will place it on the market and begin advertising the business for sale. Due to the sensitive aspect of selling a business, the marketing must be done carefully and strategically to protect the privacy of the sale.
What is a Dual Agency or a Business Agent?
A dual agency, or a business agent, operates in a double-capacity. These terms refer to business brokers who act, representing both sides of the business deal. American Fortune does not promote or support this style of service, although it is available in the world of mergers and acquisitions.
There are a variety of reasons that American Fortune doesn’t recommend this approach for handling business sales. The primary point of concern is that business brokers claim they will work in an impartial capacity serving the best interest of everyone. However, the issue at the center of a significant transfer such as selling a business is that the involved party’s interests are opposing. There’s also the matter of the human element. Business brokers are people trying to make a living. Although there’s no doubt that they would aim to keep their word as professionals, there’s no reasonable way to accommodate everyone’s best interest. Consider the stance for a moment, what would be the vantage point for a seller would hinder the buyer’s position. If the seller achieves the asking price, the buyer didn’t have someone working on their behalf to obtain the buyer’s best possible price. American Fortune strongly advises each party to hire their own business broker, so each party has a broker working exclusively in that party’s best interest.
Do Business Brokers Conduct Business Valuations?
A business broker should take great pride in their ability to provide accurate and defensible valuations. The skills and effort that go into a business valuation are taxing in time and effort. A formal business valuation should be the first, not the final, step in selling a business. Before putting the company on the market, the owner should turn to qualified business brokers for a valuation. That formal valuation can help a business prepare for sale or help an owner decide if it is the right time to sell.
Through offering valuation services, business brokers can help an owner determine if they were accurate in their perception of the businesses’ present value. It can also help an owner understand how making moderate changes may have a significant impact on the potential sales price.
A business valuation can also benefit a potential buyer. Toward the end of the deal, it is advantageous for potential buyers to review or obtain a valuation for the business to assist them during negotiations.
Many owners calculate the value of their business independently but aren’t aware of key information that can change that valuation. Market information is not easily accessible, and typically business owners aren’t aware of market trends or how to apply them to the value of their company. Additionally, business brokers use time-proven methods in establishing a value that goes far beyond what owners see on their annual financial statements.
How Can You Find a Qualified Business Broker?
Unfortunately for business owners and potential buyers, the business sale and acquisition industry are only lightly regulated. Most states don’t require licensing or require very little training before someone can open a business brokerage business. A handful of states such as California and Florida require business brokers to hold a real estate license as a minimum, but nothing is more strict than these requirements.
In response, the industry has taken to helping business owners understand the process by providing information that can help a business owner determine how to qualify as a professional and experienced business broker. Ideally, business brokers have a long track record.
How do you know if you’re working with a qualified professional? American Fortune recommends that owners consider brokers that have at least an MBA or an extensive educational background in business accounting and finance.
Business owners can ask for some information to help them determine if business brokers have the qualifications necessary for successful handling of business sales.
Experience should always stand as the primary factor in determining if they’re a good fit for your needs. Ask for a list of references and follow-up on those references. Ask the reference what it was like for them. Was the business broker supportive, and did they have access to the resources they needed when it came time to make decisions. Ask them if they felt their broker defended the valuation and if it stood up to the task during negotiations.
Integrity is a matter that is present in every business sale. Is this a person you would trust with your family and retirement plans? If this person is handling your exit strategy, are they looking to cultivate a legacy for your company or simply hand it off to the buyer?
Credentials are another matter to consider. As mentioned earlier, due to light regulations, the industry has moved to help business brokers establish their credibility. The International Business Brokers Association certification for a Certified Business Intermediary (CBI) is a reliable credential.
Ultimately you’ll need to make this decision for yourself. It’s often reasonable to meet with a variety of brokers to find the one with the right experience and credentials, and then it’s up to you to determine if they fit within your ideals and understand the goals of your sale. Owners have many options and can have goals outside of simply selling the business for the sake of it. Business brokers should assist with much more than securing a reasonable sales price.
American Fortune Business Brokers
As business brokers, we take pride in assisting business professionals in every step of a business sale. Our team provides defensible, accurate, and detailed formal business valuations, which provides transparent insight into the business at hand. Throughout the transaction, business brokers aid the seller with negotiations in that party’s best interest with support in exit planning, management of transaction, and closing the sale as well.
American Fortune Business Brokers offers a full range of consulting services for business owners wishing to sell their business. Our business broker’s services provide a variety of ways to support business owners. We aim to deliver what business owners need: control over the sale of their business. Ultimately, business brokers should help owners to save money by empowering them to select only the advisory services that they need to successfully sell their business. You can learn more about these services and support options here.
American Fortune Business Brokers, is a consulting firm for business owners wishing to sell their business. American Fortune offers several options in business brokers services. This gives owner control over the sale of their business and saves them money by empowering them to select only the advisory services they need in order to successfully sell their business. To learn more, visit: www.sellmyusbusiness.com.
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Clients utilized American Fortune to sell their businesses in the following areas of the USA: Columbus Ohio, Atlanta Georgia, Lexington Kentucky, Bowling Green Kentucky, Nashville Tennessee, Memphis Tennessee, Cincinnati Ohio, Dayton Ohio, Toledo Ohio, Los Angeles, Cleveland Ohio, Pittsburgh Pennsylvania, Baltimore, Maryland, Indianapolis Indiana, Chicago Illinois, Detroit Michigan, Flint Michigan, Tampa Florida, St. Louis Missouri, Kansas City Kansas, Des Moines Iowa, Minneapolis Minnesota, Louisville Kentucky, Oklahoma City, Oklahoma, Dallas Texas, Fort Worth Texas, Denver Colorado, San Francisco California, Salt Lake City Utah, Phoenix Arizona, Lexington Kentucky, Los Angeles California, San Diego California. Our main offices are located in Los Angeles California, Louisville Kentucky and Detroit Michigan.