I’m often asked when talking to Business owners on the phone or in-person for the answer to the following question - “What does a business broker do? “
The answer is simple…a Business Broker assists buyers and sellers that are looking to purchase or sell a small to mid-size business.
If the Broker is representing the seller of a business, the main responsibility of the broker will be to identify potential buyers by marketing the business thru a number of different channels such as marketing online via business for sale websites, including their own, or by utilizing hopefully their extensive digital marketing capabilities. A typical listing will generate 60-100 buyer candidates over the course of the sales process that can range from 3-12 months.
When selling a business, one key aspect of the process is to keep the listing confidential. That’s right, unlike a realtor, a business broker doesn’t want people to know a company is even for sale. Commonly, family members, employees, vendors, customers, and even family members will be aware that a business is now for sale. In our experience, keeping confidentiality during the listing is paramount not only to protect the business while selling but even after the buyer has closed on the transaction.
All buyers are required to sign a Non-Disclosure Agreement (“NDA”) as well as give the broker some background information so we can assess their experience level as well as a potential fit for the business. Once the buyer is approved, they are given a summary of the business as well as some limited financial information so they can better determine if the opportunity meets their criteria.
Each step of this process is handled by the listing business broker and a team of support personnel that will quickly move the buyer thru each step. An experienced broker that vets potential buyers is a great asset for business owners or sellers as they will ask questions before moving to the next step of setting up a buyer-seller meeting.
Buyer – Seller Meeting
One of the more enjoyable steps in selling a business is the initial meeting between the interested parties. An owner meets the buyer in person or in the post-pandemic world via a video conference call that allows the buyer to ask questions about the business. This meeting will usually last 60-90 minutes depending on the business and is used to generate further interest in the company.
Once this meeting is completed it’s not uncommon for the buyer to begin preparing an offer that the seller can consider and that the business broker presents directly to the owner. Depending on the buyer and the business a broker might ask for the buyer to provide proof of financing and a bank statement that will assure the seller that they are qualified.
Once an offer is accepted the buyer and seller will move to the most important part of the transaction and that is the due diligence stage. A buyer will engage an attorney to draft the asset purchase agreement and any other schedules to complete the paperwork. The broker will manage a secure data room for the parties to share documents that may include tax returns, contracts, payroll data, technology, leases, and other relevant information.
A good business broker will manage the process and discuss issues that come up during the due diligence in order to keep the deal moving toward a closing.
The lender for the business sale is usually who everyone is waiting on to close a transaction. It might take anywhere from 60-120 days for the bank to grant all the necessary approvals for the parties to close. The longer time frame of 120 days is when there is real estate being sold at the same time as the sale of the business.
Hiring a business broker that navigates both buyers and sellers through the sales process raises the odds of closing on a business. Nationally, it’s estimated that only 10-20% of businesses sell, and if a business broker is involved the chances of completing a sale can rise to over 25-30%.
So the next time someone asks what a business broker does, it’s not just securing a favorable price, or handling paperwork, it is also to increase the odds of selling a business.
To learn more about what a business broker does please visit our homepage at www.playbookadvisory.com.