Photo courtesy of Adam Foster
Do you need a go-between to help you buy or sell a business?
In the business world, you can either start your own business or buy an already-established company. While you can do negotiations directly with the buyer or seller, this can be a minefield if you’re new to the concept of buying and selling businesses. In this case, it may be best to use a business broker.
What is a Business Broker?
Business brokers are essentially a “middle man” that goes between a business buyer and seller to negotiate the terms of a sale. Business brokers can work for the seller or for the buyer. In each case, they are determined to find a negotiation point where both parties are happy with the transaction.
For example, a buyer could hire a business broker to help in buying a local craft shop that’s currently for sale. The broker would meet up with the seller to determine their initial asking price, then relay this back to the buyer. The broker would go back and forth until the seller is happy and the buyer is willing to purchase the craft shop. Essentially, a business broker is like a real estate agent in that they know the ins and outs of buying and selling a business and will do the work for you.
The Pros of a Business Broker
One of the main benefits of using a business broker is his skills in negotiation. A good broker will be able to convince a seller to accept a lower price for the sale, or convince a buyer that the price is worth it for all they get in return. By hiring a broker, you don’t have to worry about the negotiation stage.
According to Entrepreneur, a good business broker will also help you avoid risk. The broker will have done research on any companies you’re thinking of purchasing and will see red flags or potential pitfalls that you hadn’t noticed. Since they are so experienced in the buying and selling of businesses, they know more about what to look for and what to avoid.
Paperwork is a big part of the completion of a business sale. If you’re inexperienced in buying or selling a business, you may not know about all the forms involved. The business broker will know exactly what needs to be filled out to complete the transaction.
The Cons of a Business Broker
The main drawback to hiring a business broker is the fees. According to Entrepreneur, most business brokers charge between 5 and 10 percent commission for the sale. So, if you sell your business for $100,000, the business broker will receive $5,000 to $10,000 as her fee. However, the seller is usually the one that pays the broker’s fees, rather than the buyer. This can be negotiated into the sales contract.
When you’re looking for business brokers, be aware that not all are good at what they do. A bad broker could lose you money on the sale of your business, or use faulty negotiation tactics when you want to buy a store. Darren Dahl of Inc.com suggests looking up a potential broker’s qualifications and reputation. The broker should be a Certified Business Intermediary and have a positive presence on the Internet.
Is a Business Broker Right for You?
If you’re buying or selling a business for the first time, a business broker can help you with her experience. Business brokers are a good choice for first-timers who don’t have much skill in negotiation.
Then again, if you’re confident in your skills at negotiation and have experience in buying and selling businesses, you may not find the 5 to 10 percent commission fee worth the trouble.