Choosing a Broker... Whats the difference?
Choosing a broker to help you buy or sell a business is an important decision that can save you a lot of time and money.There are several ways people refer to the agent between buyer and seller: intermediary, investment banker, business consultant, mergers and acquisitions adviser, business broker.
It may also depend on the typical market a professional works in.
Types of Business Brokers:
Business brokers and business intermediaries typically handle businesses with gross sales up to $5 million, with the majority of these businesses having sales under $2 million.
Business brokers handle the transfer of most our main-street businesses, like restaurants, car washes, retail businesses, and service businesses. Some brokers are solo professionals and some are small groups and some work in larger firms and franchises. Some will specialize in working with buyers and some will specialize in selling.
An investment banker, serves mid-size companies typically with over $5 million in gross sales. These types of companies are usually sold to another company or investment group.
Investment bankers will usually help arrange funding on these companies, sometimes even bring their own capital into the deal or taking equity in the company as consideration for services rendered.
Real estate brokers and Realtors are sometimes hired to sell a business in some cases. Usually smaller owner-operated businesses that may only be able to get the asset value.
Your typical Realtor will not have the skill set or the experience to recast the businesses financials to find the hidden value in the business and be hard pressed to guide a buyer or seller through due diligence.
Many business brokers have Real Estate Licenses and by law, have-to in some states.
Skill Sets and Experience
I hold a real estate license, but I hired a Realtor to list my house when I last sold. Why? Because selling residential real estate was his specialty, not mine. I recognize that a competent Realtor can find me a qualified buyer and get a higher asking price than I can, they do it every day.
The same is true for selling a business.
In fact as I write this, two of our current listings were referred to us by a Realtor. When buying or selling a business, choosing a broker with the appropriate skills is a must. Just like a Realtor will know comparable values in different cities and suburbs, a business broker will have detailed knowledge of industry benchmarks and trends and know what factors affect which types of businesses.
Business Brokers and Intermediaries will have much more knowledge of business financials and how to read financial reports and more importantly, how to discect them and rebuild them to translate the businesses true earning power to others.
Retainers
Choosing a broker will also depend on whether you are willing to pay a retainer. Some brokers and intermediaries will require a retainer up front before working on your company.
Investment bankers and specialists who work in mid-size companies always require an up-front retainer and sometimes a monthly retainer. Completing a transaction can take 1-2 years with larger companies.
If you are choosing a broker or intermediary to search out a particular type of company by approaching not-for-sale companies and arrange a transaction you will likely pay a retainer.
Marketing
Realtors operate under the premise of letting the world know that they have a listing for sale and then bringing the highest volume of buyers through the door in effort to find the buyer. The strongest asset of the Realtor is the MLS - the Multiple Listing Service, a regional database for listing real estate for sale.
Business brokers and intermediaries understand that most business owners are rightfully cautious of key employees, competitors, suppliers, and customers finding out the business is for sale prematurely, resulting in a negative impact.
Business brokers will carefully market the business and cautiously screen prospective buyers. Non-disclosure agreements are the norm and so are basic financial statements with any sizable business.
Most intermediaries will not want to risk the embarrassment of introducing an unqualified buyer to the business owner.
According to the book, The Buying and Selling of a Company Handbook: "Professional intermediaries and advisor's have little interest in working with would-be buyers who do not know what they want to buy, do not have the access to the necessary financing or are not prepared to proceed professionally."
When choosing a broker it is important to realize that the biggest advantage of working with a business broker, intermediary, or investment banker is that they already have an established network of people and companies in various stages of buying and selling.
They should already have multiple businesses currently for sale, and know of ones which are for sale, but not being advertised publicly.
If you wish to buy a company, brokers will already know of companies which may be ready to sell if the right buyer comes along, but haven't exactly posted the for-sale sign.
The same is true for the seller of a business, a specialized business broker will already have hundreds, if not thousands of financially qualified buyer candidates waiting for the right business to come along.
