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How Does A Business Broker Work?

How Does A Business Broker Work?
Image by Sue Styles from Pixabay

When you think of a broker, you think of someone who works on Wall Street buying and selling stocks for their client. However, some brokers buy and sell things in various industries, and a business broker helps people buy and sell companies

Sometimes called intermediaries, business brokers often also sell real estate. A business brokerage is set up in much the same way as a real-estate agency. The brokerage firm has a primary broker, and several brokers work underneath them. A broker’s clients are generally people who want to sell their business rather than buy a business.

A broker will assist their client with the sale of their business from start to finish. However, some brokers may be attorneys. Most are not. An attorney will still be necessary to help with the transaction. An escrow attorney will assist in the sale of a business when a brokerage is employed. A business broker will normally go through several steps to sell a company.

Valuation 

The first thing a broker will do is determine how much your business is worth. They will use one of five basic techniques to find the Most Probable Selling Price Valuation of a company. They may look at bottom line profits, cash flow, revenue, future profits, or other factors. The method they use will depend largely on the type of business you are trying to sell. 

They will also analyze your last three years of tax returns. It is important to prepare for this stage as you would for an audit. They will then write a report on their findings for potential buyers to read.

Looking for a Buyer

There are certain websites on which business brokers locate potential buyers. They will peruse these sites for potential customers. They will also list your business in various publications and on various websites. 

They will list such things as the nature of your business, the location, and the building’s size. They will never give the name of your business in such a listing.

Before their client meets with a potential buyer, they will make sure the buyer has the funds to purchase the business.

Set up the Structure of a Deal

Once you have found a serious potential buyer, the broker will work out the transaction details. This will involve guiding the buyer and seller through the necessary paperwork. They will be responsible for making sure that the details of the sale remain private. 

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Image by aymane jdidi from Pixabay

How Much Will It Cost

The average business broker makes about $131,982 a year. There are several different ways in which they may bill a client. They may charge you a commission when you close the deal, or they may bill you by the hour. Some brokers charge retainers the way that a law firm would, and those retainers may not be refundable. The normal commission for a broker is about 10%.

What are the requirements to become a broker?

Some states require business brokers to be licensed and others that do not. The State of New Jersey does not require business brokers to be licensed. You may want to ask a potential broker what professional organizations they belong to and how much experience they have had in the business. Ask about their training and be sure to get references that you can call. Do not rely on internet reviews.

You are not required to use a broker to sell your business, but using one will save you a lot of time and stress. A business broker will already have a relationship with an escrow attorney. If you sell your business on your own, you will have to hire an attorney anyway. click neumannassociates.com for more information.

Featured Image by Sue Styles from Pixabay

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