A business broker is the link between a buyer and a supplier in small business transactions. It’s rather like hiring a real estate agent. The role can also be fulfilled by an individual or by a company. Business brokers are also known by names such as business transfer agents or intermediaries. Their role is important for sealing business deals efficiently and to the satisfaction of both parties. Generally, the broker earns a commission with each sale he facilitates.
When we say small business, we mean those that conduct transactions valued at most $10 MM. Business brokers can also facilitate mergers and acquisitions between small companies.
Generally, brokers act like the active third party. They should know and understand the buyer’s needs as well as the seller’s needs. Interpersonal skills are important as well as negotiating skills. A broker values the confidentiality of his clients and of the business deal and will make an effort not to compromise it.
The broker-client relationship is initiated by a signed contract with the supplier/seller or a buyer representation agreement with a buyer. Thus he becomes a representative for his client who can choose to remain anonymous to the other party. Therefore, he has to put the client’s interests to the forefront and work to get the best deal for the client.
Transaction brokers are a type of business broker who does not represent either the buyer or the seller. This means they have to be neutral in their dealings and not sway towards any key party in the deal. His role is purely one of mediation - to make the sales process a hassle free one.
When the same company (brokerage) represents the seller and the buyer under a written agreement, it’s known as ‘dual agency’. Special laws are in place for such representation, so that conflicts are avoided and business deals don’t turn messy.
What will a business broker be doing?
Several services are offered by a business broker but the quality of service is based on the skills and experience.
- Help the seller to get the best dollar value for his product or service.
- Establish the Most Probably Selling Price Valuation by going through a business and evaluating its net worth
- Create a comprehensive document summarizing the business and highlighting its standard
- Carry out buyer searches
- Filter potential buyers to come up with the most probable set of buyers, thereby making the process convenient for the seller
- Negotiate prices
- Market the business to potential buyers
- Guide the client through the entire deal
- Keep the sale and/or the client’s details confidential
- Offer consulting services, if necessary
A business broker does not have the power to close a deal without the approval of the principal (the seller). He/she cannot sign any closing documents on the sale.
Business brokers are an asset to business owners/managers because they can carry on with their work without having to worry about sales and negotiating prices. Typically, business deals can take up to a year to be fully processed. In business, time is money and the broker can save a lot of time for his client.
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