This article are provided for information purposes only, and are not intended as legal advice.


What is a business broker?

January 13th, 2009

A business broker is an intermediary between an investor and the seller of the business.  The seller of the business usually hires the business broker to represent them.  The business broker discusses and may recommend the selling price of the business with the seller before listing the business for sale.  Most business brokers require that the seller sign a contract for a period of time where the broker has the exclusive or non exclusive right to sell the business. 

 

The business broker often prepares a short document summarizing the business for sale and is responsible for finding qualified buyers.  The broker does not always look into the financial ability of the buyer therefore the business broker may not be able to confirm if the potential buyer has the financial means to purchase the business. 

 

The service that each business broker provide may varies.  Some business brokers are real estate agents and get the buyer to use their real estate forms to document the offer to purchase the business. Other brokers assist the buyer to prepare a letter of intent and helps negotiate the terms.  Some brokers will also review the purchase and sale agreement and make comments to ensure the business transaction negotiated is documented in the purchase and sale agreement.  Some business brokers will also help count inventory and ensure that the closing of the sale of the business goes smoothly. 

 

I saw one transaction where the seller left the city and moved to another city after he sold the assets of his business.  The business broker helped collect the receivables from the purchaser, who was in charge of the collection of the receivables, and helped mediate discussions between the buyer and the seller who had a falling out after the sale because of issues which arose during the purchase of the business. In that case, the buyer’s lawyer went on holidays on the day of close and the new owner was not taking any of the predecessor’s staff.  Since the owner knew the day of close, all employees were terminated but the sale did not close on the day that was anticipated.  In this case, the business broker assisted the buyer and seller to work together and close the transaction.  The transaction closed 90 days later than expected. Problems sometimes arises during closing and the business broker may be able to assist both parties work out the last minute issues.

 

Each business broker may charge a different fee.  Some charge retainers, some small others large.  Some firms charge the higher of a percentage of the selling price and an hourly rate for finding and discussing the business opportunity with potential buyers.  The amount of work that each broker may do varies.  The brokerage fee may also vary.  Do not go by just the fee, look at what service is being performed and you can then determine if one broker is more expensive than the others, is the additional service that they perform worth the premium that they desire. 


Filed under: Business brokers — Gary Landa @ 7:54 pm


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