Your business broker plays an integral role in selling for full value and in a timely manner. In this review, we discuss the role of a business broker, what exactly it is that they do, how the process works, how much they charge, and more.
What is The Role of a Business Broker?
A business broker serves as an intermediary between a business owner (the seller) and the buyer. A sell-side business broker represents the seller and works on their behalf; a buy-side business broker represents the buyer.
The role of a sell-side business broker is to maximize your sale price, minimize the time it takes to close the sale, and ensure a confidential process. There are different types of business brokers that may influence their role (i.e. full-service, limited-service, and online brokers)
What Does a Business Broker Do?
Full-service business brokers like Brentwood Growth are actively involved in all phases of your business sale, from evaluating the worth of your company to providing due diligence and closing assistance after a signed letter of intent (LOI).
Here are the primary job duties for a full-service business broker:
- Preparation of Teaser and Confidential Information Memorandum (CIM)
- Preparation, execution, and management of the listing process
- Initial vetting and handling questions from potential buyers
- Arranging calls between the potential buyer and seller
- Accumulating and reviewing with seller IOIs / LOI’s
- Managing full due diligence process
- Reviewing all legal documents
- Managing closing process
What is The Business Broker Process?
The business broker process includes three phases: Planning, Finding a Buyer (Marketing), and Closing the Sale.
Step 1: Planning and Preparation
A lot of work goes into formulating your asking price, marketing strategy, and exit strategy goals. For example, how involved are you willing to be during the transition? Are you willing to offer seller financing? All the minor details must be established before you seek a buyer. You will also need to collect your financial documents (i.e. tax returns, profit and loss statements, etc.); this helps determine your seller’s discretionary earnings (SDE) and other metrics buyers will want to know.
Here are the planning and preparation steps:
- The Initial Call
- Collection of NDA
- Financial Document Collection
- The Business Valuation
- Exit Strategy Planning
Step 2: Finding a Buyer
Business brokers leverage private networks, databases, and connections to find a buyer. Experienced and proven brokers typically have a network with hundreds of potential buyers. The process of finding a qualified buyer and negotiating a deal you are willing to accept may involve:
- The Listing Agreement
- Marketing Preparation
- Gathering Interest in Your Business
- Discussions with Qualified Buyers
- Receiving and Reviewing Offers
- Accepting an Offer
Step 3: Closing The Sale
The job is not yet done after a buyer signs a letter of intent (LOI). Fortunately, full-service business brokers like Brentwood Growth help close the sale. They may also advise you through the transfer of ownership and training phases as well (if necessary).
Here are the ways a business broker can help after you accept an offer:
- Due Diligence Management
- Legal Obligations
- Closing the Sale
- Ownership Transfer
- Transition Assistance (if applicable)
How Much Does a Business Broker Charge?
There are different fee types. You should always confirm the fees for any brokers you consider. Common fee types include:
VALUATION FEE – A fee for providing a professional assessment of your company’s worth.
UPFRONT FEES – In this case, the broker charges for their services upfront, regardless of whether (or for how much) your company sells.
SUCCESS FEES – The business broker will take a percentage of the sale (usually between 4% and 12% of the sale price).
MARKETING FEES – Some brokers charge an extra fee for listing and marketing your company.
The good news is you can choose a business broker who you do not have to pay until your sale closes.
For example, here at Brentwood Growth, we only charge success fees. This means you do not pay a dime until your sale closes.
How Much Can I Expect to Pay in Success Fees?
Business brokers may charge anywhere from 4% to 20% commission. Some charge a flat rate (usually 10%) regardless of your sale price.
However, the percentage should ultimately depend on your sale price.
Less Than $1 Million Sale = 10% Fee or More
$1 Million to $5 Million Sale = 6% to 10% Fee
$5 Million to $10 Million Sale = 4% to 6% Fee
$10 Million or More Sale = 4% Fee or Less
Does a Business Broker Add Value?
A business broker adds substantial value. Of course, they add monetary value as they are trained in finding buyers who are willing and able to pay full market value. They also understand how to negotiate effectively and secure favorable terms.
Additionally, experienced business brokers also save you time and help avoid prolonged sale periods. Of course, your experience depends on the business broker you choose (see below).
How Can I Choose The Right Business Broker?
Not all business brokers are the same. An inexperienced business broker who does not understand or have connections within your industry may lead to a difficult sales experience. To avoid this, consider the following when choosing your business broker:
THE SIZE OF THE BUYER NETWORK: A business broker with access to 100+ potential buyers is ideal (i.e. our buyer network is 400+ and still growing)
PAST RESULTS: The broker should have case studies and sales experience with companies similar to yours
CONFIDENTIAL: The broker must understand how to maintain confidentiality (and must have a track record in doing so)
PRICING METHOD: Avoid upfront fees at all costs. Instead, choose a broker who is only paid after the deal closes. This incentivizes them to get full value faster.
INDUSTRY EXPERIENCE: Choose a broker who specializes in your industry and has experience with similar business types
Get in touch with Brentwood Growth for a
Free Business Assessment
Brentwood Growth specializes in mergers and acquisitions for service and contracting companies. If you are considering a complete (100%) sale or only selling a percentage of your company, then contact us today for a free business assessment.
We also provide guidance for business owners with a 5-10 year exit strategy timeline.