Business brokers are experienced professionals who act as the middlemen in high-level business negotiations regarding the buying and selling of companies, and can act on behalf of the buyer or the seller.
Owing to their specialised skills, business brokers regularly charge quite a hefty fee for their services. While this can be justifiable, it is important to understand fully the role of a business broker in buying or selling a business, and all the advantages and disadvantages of making use of these services.
#1 Accurate business valuations
A business broker can provide accurate valuation of the business for sale; they can use their extensive knowledge of the industry to make a complete assessment of the business and determine a fair price for both parties.
As businesses are complex entities, and are often comprised of many assets that affect their values, arriving at an accurate value can be a difficult task without the help of a business broker.
#2 Presentation of the business
As brokers know you must be familiar with the market and have experience in the various aspects of a business that appear attractive to potential buyers, they can help out in creating a package that will generate interest, enabling the business to be viewed in its best light.
#3 Attracting potential business buyers
When attracting initial interest for a sale, the databases and client networks that business brokers build up can be invaluable, making it simple to generate interest than just hanging your business out on a line and hopeful for a bite. Brokers can as well assist with making business listings on relevant databases.
#4 Closing the deal
Where interest is received, business brokers can make use their negotiation techniques and business acumen to convert that interest into a real sale. By luring a little healthy competition among potential buyers, including working as a mediator between buyer and seller to shape and reshape the deal into one that works for both parties, the business broker can facilitate to make the deal progress to a satisfactory conclusion for all parties.
#5 Administrative procedures
Once a business deal has been effectively confered as far as both parties are concerned, there are still a number of details and procedures to be taken care of before the sale can be approved. These can be some of the most confusing aspects of the sale to business owners, so the expertise of a business broker can prove useful in this regard.
Of course, there are some disadvantages to making use of a business broker; among these is probably the cost involved. Most brokers will request a commission of up to 10% on the final sale price – quite a hefty sum, particularly where large sales are concerned.
If these services are essential and well performed, this can be a valuable investment to make, but considering a For Sale By Owner (FSBO) transaction can be another method to evade these costs.
#2 Qualifications and skill levels
Naturally, all business brokers are not the same, and qualifications are not as vital compared to experience and kinship for the job. As such, it can be difficult to tell how good they are likely to be at their job especially when choosing a new broker. Taking into account the investment they represent in the form of the commission on the sale, this is something to be considered.
#3 One-sided interests
Most business brokers normally work for the seller; hence it’s imperative to remember that interests (and his commission) are likely to be one-sided. While it is the broker’s role to mediate with buyers and assist them in closing the deal, this does not change the above fact.
#4 Control of sale price
At last, when a sale is handed over to a business broker to manage, the price at which the sale goes down is generally dependent on the broker’s incentive to sell. This can be affected by how quickly the broker himself needs money, or the size of his commission.
Whichever way, it’s crucial to remember that, while the broker represents the interest of the seller, he is not the seller himself – at the end of the day, the two parties walk away with very different amounts of money.