Business Brokers

Overview

Business brokers are sometimes called business transfer agents or intermediaries and help business owners sell their companies or organizations. Business brokers estimate the value of a business and advertise this business as for sale. Depending on the needs of the seller, a broker will either disclose or conceal a company's identity. These agents provide additional services to sellers by conducting initial buyer interviews, guiding discussions, and managing negotiations with prospective buyers.

How It Works

Business brokers act as agents between buyers and sellers. They operate in all industries and provide a variety of services from the beginning to when the sale closes. Business brokers are involved extensively with advertising and negotiations; however, they are not final decision-makers.

Generally, a business broker begins by creating a sale listing on behalf of a business's seller. They answer inquiries from prospective buyers on behalf of the seller. Brokers conduct research for the seller and will generate models for expected closing sale prices. Brokers will compile a 15 to 30 page Most Probable Selling Price Valuation guide (MPSP) that explains the economic reasons for why a business is expected to sell for a particular price. Brokers facilitate the exchange of information between buyers and sellers in order to ensure that both parties make educated and informed decisions.

Benefits

Business brokers are particularly helpful when drafting contracts. Contracts frequently require a sophisticated legal background and are difficult to compile or understand. A business owner does not always have time to conduct research, create advertisements, and interview prospective buyers. A broker can manage the business sales process so that business owners can focus on running day to day operations. Brokers supervise these operations while maintaining professionalism and confidentiality.

Costs

A broker requires compensation in one or a combination of three forms: an hourly fee, a retainer, or a success fee (commission upon closing). Most commonly, brokers charge clients based on success fees. In the United States, success fee rates range from 5% to 12%. Brokers disclose their commission rates to both buyers and sellers during the sales process.

Timing

Owners wishing to sell a business may consult a broker at any time. Prospective buyers should also consult business brokers for available opportunities. Those who consult business brokers do not necessarily need to commit to buying or selling a business.