What Is a Business Broker and What Do They Do?
Learning how to pick a business broker can help your company sell to the right people. Explore what a business broker is, what they do, how they can help your business and what the advantages are to using a business broker’s services to help sell your business.
What Is a Business Broker?
If you have been looking into buying or selling a business, you may have heard the term “business broker.” A business broker represents owners of companies looking to sell their businesses. Brokers list the business for sale, find buyers and negotiate terms of selling. Sometimes they are called business sales brokers or sell-side business brokers. Most of them represent the seller. But some brokers represent buyers and are referred to as buyer brokers or buy-side brokers.
Finding the right business brokerage firm is a significant first step in selling your business. But before looking into top business brokers, you should understand a little about what a business sale broker does. Once you know what to expect, you will understand which brokers might work for you and which to choose.
What Does a Business Broker Do?
Think of a business broker as a sales team for your business. Just as real estate brokers have the information and contacts to sell your home, a business broker has the information and resources to sell your business. However, there are some definite differences between selling real estate and selling a business:
- Confidentiality: When selling a business, confidentiality is important. You don’t want customers, employees or competitors to discover that your business is for sale. Business brokers will protect your privacy during the sales process.
- Financial information: It would be best to have a broker who understands profit and loss statements, reviews tax returns and analyzes and presents the financials.
- Positioning: You need a broker who knows how to write a summary document. Summary documents position the business to attract potential buyers without giving away the business’s identity.
- Marketing: Experienced business brokers know how to market businesses to potential buyers looking to acquire a business.
Unlike realtors and business owners, experienced business brokers only focus on selling businesses. They have all of the necessary skills to lend their expertise to those unique issues. Business brokers help you set a reasonable asking price that considers the value of your business and the state of the market while giving advice and guidance on presenting your business to make it attractive to buyers. They can also use their network to connect you with the most motivated buyers and investors for the best chance at selling your business fast and at a great price.
You can expect to sell your business much more quickly when using a business broker compared to selling it on your own. You can also be confident you are selling at an appropriate price and the higher price you secure with their expertise can pay for the cost of the broker. Using a business broker is an efficient, lower-stress way to sell a business.
How Can a Business Broker Help Me and My Business?
A business broker can help your business in a variety of ways, from helping you acquire and merge a business with your own to selling your business as you seek retirement. Whatever your personal needs in business transactions, a business brokerage can make sure one of the biggest sales of your life is the most effective.
Are you considering the sale of your business and wondering what your best options are? Perhaps you want to transition into retirement, or maybe you are ready for something new. Whatever your reasons for selling, you probably want to know what would be the best way to go about it.
You could try to sell your business yourself. Or you could use an accountant, lawyer or realtor. Some people try all of these options with varying degrees of success.
However, some things to consider are:
- Price: Are you looking to get a great price for your business?
- Confidentiality: Do you value a confidential sale?
- Buyer types: Do you want a buyer who understands your business and will treat your employees and customers as you would?
If you want all of these things, perhaps it makes sense to consider someone specializing in selling businesses like yours. A company that specializes in selling companies can be called a business broker, selling business broker, business sale broker, Mergers & Acquisitions (M&A) broker, or broker business for sale. All terms may be used interchangeably depending on the company.
Advantages of Using a Business Broker to Sell a Business
There are many complex issues that an experienced business broker can guide you through, such as potential sales as assets or stocks, asking prices of businesses and what potential buyers might buy your business. Here are some of the many benefits working with a business broker provides:
- Separate you from the sale: Whether you have an emotional attachment to your business or don’t have the time, a broker can help you separate yourself from the sale process.
- Find qualified buyers: Using a broker can streamline the search for buyers. They’ll find you qualified buyers who understand your business, making the transaction beneficial for you, your business and the buyer.
- Get professional recommendations: Brokers have networks they can use to help your business sale go smoothly. Get recommendations for attorneys who specialize in business sales or accountants who can help you handle taxes.
Questions to Ask a Business Broker
A business broker can help you to sell your business. Usually, they work together with you because you are an expert on your business, and an experienced business sale broker is an expert on selling businesses. It’s essential to pick the right business sale broker. Here are a few criteria to help you find the right business broker:
- Length of business: How long has the company been in business?
- Experience: Has the company sold a business in your industry or one similar to yours?
- Buyer database: Does the company have a large network of potential buyers?
- National reach: Does the business sale broker operate in multiple states?
- Confidentiality: Does the broker require buyers to sign a confidentiality agreement before getting business details?
- Advertisements: Are their businesses for sale advertised without the name of the company?
- Fees: Does the broker only collect a fee if they sell your company?
- Communication: Is the broker reliable in their communications?
- Client testimonials: Are their reviews favorable?
- Marketing: Does the company have an extensive marketing program?
How Do Business Brokers Sell Businesses?
The first step is typically a no-cost confidential consultation. You can ask and receive answers to important questions. This discussion will give you and the business broker a chance to see if you think you’re a good fit.
The next step is to see what an approximate sale price will be for your company. You will need to provide some information on your business, such as:
- What is your annual revenue?
- How much money do you make from salary, profit, perks and benefits?
- Do you have any customers that make up more than 20% of your revenue?
- What types of customers do you have?
- What products or services do you provide?
- How do you differentiate from your competitors?
- What skills do you and your employees have?
The Potential Sale Price for Your Business
After they have provided some information, the business sale broker will compare your business to the selling price of similar companies. While every business is unique and you can’t get an exact price for what your company will sell for, this will give you a ballpark selling price. From there, you can see if that price is enough to fund your retirement or launch you in your next venture.
Almost everyone wants to maximize their sale price, including business sale brokers who get paid based on percentages of the sale. In this case, your goals align.
If you decide that the estimated sale price is enough, then you can move on to the next step of signing a listing agreement with the right business sale broker. The listing agreement outlines the commission to be paid if the business is successfully sold. When the listing agreement is signed, you can begin a confidential marketing process.
Keeping the Sale Confidential
They do this by creating a brief overview document, sometimes called a teaser, which provides some basic information on the business but doesn’t contain the company’s name or specific location. A business sale broker will use the teaser document to contact potential buyers and advertise online. Once a buyer is interested in getting more information, they sign a confidentiality agreement and provide some details on their qualifications. Then the M & A broker will provide more information to see if the buyer is interested after reviewing the specifics. If they’re interested, they’ll contact the business broker with some initial questions and discuss the details of their interest.
When the broker and buyer feel that it is a good fit at this point, then the selling business broker will contact the seller to give them an overview of the buyer. If the seller is interested, the broker will set up a meeting or an initial phone call with the buyer, seller and broker.
Negotiating Offers for Buying Your Business
A meeting or phone conversation allows the buyer and seller to find out more about each other, answer questions and see if they want to move forward with the process. If they do, the buyer will make an offer if they’re going to proceed. Business sale brokers will help to negotiate the proposals on behalf of the seller. An advantage of working with a top broker like Synergy Business Brokers is they will typically be able to get you multiple offers. This increases your leverage in getting the best price for your company.
It also gives you a wider pool of potential buyers to choose from. If the offers are similar, you would want to select a buyer that you feel comfortable with. In most cases, you would be working with the buyer after the sale to transfer knowledge about the company and introduce them to customers, employees and suppliers. You will also be available to answer questions they might have to ensure that the business is successful without you.
Agreeing on Due Diligence
Business sale brokers can help advise you about what is normally done in due diligence. There may be a difference of opinion between the buyer and seller. We have seen cases where buyers are treating due diligence as if they are buying a 10-billion-dollar business when the business is being sold for two million dollars. If the buyer or their advisors have come from a background of working on several billion-dollar deals, they may be accustomed to this level of due diligence.
It’s important to agree on what due diligence will be done before you invest too much time in this process. Business sale brokers can help overcome differences during due diligence between accountants, lawyers and buyers and sellers.
Negotiating a Contract
Sometimes the purchase agreement is negotiated during due diligence and sometimes it is done when the due diligence is nearing completion. To get a deal done quickly, it is best to start negotiating the contract at the beginning of due diligence. But, from the standpoint of cost savings, the buyer and seller may prefer to wait to accrue legal costs until after due diligence is close to completion. This will allow both sides to be more comfortable that a deal will be finalized and uncover any surprises in due diligence.
As a business owner, you must keep the revenue and profitability up during the due diligence phase. If the net income takes a nosedive, this is likely to scare off buyers. In some cases, you may have to renegotiate the price or terms of the deal to keep the deal alive if problems occur during due diligence.
Closing the Deal
A lot of issues can come up, which can derail a deal. It helps to have an experienced business sale broker on your side who can guide you. Their experience allows them to draw from solutions to problems that have worked in the past and improvise because no two deals are alike and solutions can be as unique as the challenges that can occur. It could be issues involving partners, advisors, changes in the industry, financing or a difference of opinion in what should be included in a sale or contract.
Contact Synergy Business Brokers to Sell Your Business
Synergy Business Brokers is a mergers and acquisitions firm that helps business owners sell their companies. We represent various sellers in high-revenue industries, from manufacturing, healthcare and technology to distribution and construction. Our company will provide advice and knowledge about selling your business to others while helping you locate quality deals.
Synergy Business Brokers has been successfully selling businesses since 2002 in areas throughout the United States. We are members of international and local business broker associations and know what motivated buyers are looking for and how to reach them. We are highly confidential while negotiating your sale, and you don’t pay anything until you sell your business.
For those interested in buying a business, explore our businesses for sale online. You can view various industries, from construction and manufacturing to engineering, contracting and transportation.
When you have found a business that you are interested in, please fill out our online NDA on the listing of interest and provide us with some information about you. We will follow up with you to discuss the listing of interest, answer questions and see if you may be a good fit to purchase the business.
Contact Synergy Business Brokers today to learn more.