What is a business broker and what do they do, anyway? Business brokers, of course, sell businesses and given the fact that every business that does not fail will eventually change hands, business brokers are certainly as critical to humanity as any of the others – and probably FAR more critical than art or boat brokers!
Arguably the most important aspect of selling a business and the chief initial interaction a business broker will have with a prospective client is determining the value of the business; what we refer to as the most probable selling price (MPSP). Understanding what the business will probably sell for – its general worth – is critical and the starting point of the process of selling.
Often times, good, honest business brokers are the bearers of bad news. Business owners generally have an inflated opinion of their business’ value and when they hear what the market suggests that the value is, they disappointed. We have lost many listings over the years because the market value (that we present) is lower than what the seller wants/needs. The seller may list the business with their sister-in-law, the residential realtor, and the sister-in-law, having no clue as to how to determine the value of a business, will list the business on the local MLS and spend a year or two getting no action whatsoever. (In the entire history of residential multiple listing services, no one person, anywhere in the world, went to an MLS in search of a business.) Some sellers eventually come to their senses and call the business broker back to see if the broker would be willing to help – at a market price!
We will take business overpriced listings, however, we will always advise the Seller that the listing price may need to be reduced over the life of the listing.
What types of marketing materials are needed? Well, that may depend on the type of business being offered but a basic approach that we take is an offering memorandum and an abstract of that memorandum.
Our Offering Memorandum is generally a 15 to 30 page document that will usually answer every question a buyer has about the business we are representing and the abstract is a three or four page synopsis of the memorandum, similar to a legal abstract of a, for example, 70 page lease. Together, these documents will give a potential buyer all the information needed to make a go or no go decision, save for a visit the business.
Other Important Things To Consider
A blog post is utterly unsuited to explaining all the aspects of what a business broker does but here are some thumbnail outlines. If you have any questions about these or any other aspects of business brokering, do not hesitate to contact us.
– Marketing – How do brokers find buyers? What kind of ads should be placed and where should you place them?
– How does a broker qualify buyers? How can you know if the buyer is serious or that it can afford the business it has inquired about? There are many tire kickers for every business a broker lists. The amount of time the broker wastes will depend on how well the broker qualifies the potential buyer.
– What documentation is required? The list of documents needed for closing varies with the type of business being sold, the type of transaction (asset or stock sale), the presence of inventory, the need for financing and much more. The Purchase Contract is only the beginning.
– How will the buyer pay for the purchase? Because financing is almost always involved, what sources does the broker have and what guidance can the broker give to the seller?
The bottom line is that a Business Broker will do all of the above for a Seller, allowing them to concentrate on running their business instead of taking valuable time trying to sell the business on their own.