Want to buy a business or get one off your hands? A business broker can help – if you know how to find an effective one. Read on to learn how to find a business broker.
What is a business broker?
Business brokers assist you in buying or selling a business. The broker is usually contracted to be the agent of a client known as a principal. The principal is either a business buyer or a seller. The other party involved in a transaction, be it a buyer or seller, is the broker's customer. This is akin to how real agents operate.
Along with standard brokers are transaction business brokers. These brokers help carry out transactions between the buyer and seller but do not act as an agent to either.
Why do I need a business broker?
People use business brokers for the same reasons they use real estate agents. An experienced professional can remove the "gotchas" from what is a complex transaction. They can also ensure that you make a sound investment or receive a competitive price on sale. There's often a lot of money at stake in the transfer of a business. You want to be sure that it's put to good use.
Beyond this, business brokers can help people interested in buying a business:
- Find a suitable business
- Get relevant disclosures about the business from the seller
- Assess whether the valuation of the business is fair
- Negotiate the business sale price on the buyer's behalf
- Secure financing
- Manage the sale from end to end
They can help people who want to sell a business:
- Value a business
- List the business for sale
- Market or advertise a business to buyers
- Identify suitable buyers
- Screen buyers for financial fitness
- Negotiate the business sale price on the seller's behalf
- Manage the sale from end to end
5 tips on how to find a business broker
Use these tips to find a business broker who can help you buy or sell a business without hurting your finances.
- Rely on referrals or newspaper ads. The best way to find a business broker is to seek a referral from a trusted contact in your business network. A broker-principal relationship should be one of trust, after all. But seeking out brokers in the business section of a newspaper is also a decent option.
- Look for professional memberships or certifications. The International Business Broker's Association is a large professional community of brokers. Being a member of the IBBA is one sign of a reputable broker. If you wish, further narrow your search to Certified Business Intermediaries (CBI). These professionals must uphold high ethical standards in their business dealings.
- Do a deep dive into your prospective broker. Ask any broker about his track record on business transactions in your niche. Look for a full-time broker with several years of experience and recent successes. Try also to find positive customer testimonials from prior clients. On the flip side, ensure he has no prior complaints or lawsuits against him.
- Adhere to standard pricing terms. Standard brokers work on commission and get paid with a cut of the business sale price. There may also be some (albeit reasonable) fees involved. But you should say "no thanks" to those who try to charge you upfront, especially when the price is exorbitant.
- Avoid brokers with a profit-first mindset. Business brokers will have a fiduciary obligation to you in most cases. In other words, they must exercise prudence when it comes to your financial decisions. Steer clear of brokers who appear to put their profits above your financial health.