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Mergers, Acquisitions & Investment Banking for Mid-Market Business Owners
Knowledge Base - Sellers Broker

Business Broker Definition - A business broker is a person or Company that acts as an intermediary between sellers and buyers of a businesses. Business brokers, also called business transfer agents, or intermediaries, assist buyers and sellers of privately held business in the buying and selling process. They typically estimate the value of the business; advertise it for sale with or without disclosing its identity; handle the initial interviews, discussions, and negotiations with prospective buyers; facilitate the progress of the due diligence investigation and generally assist with the business sale.

Agency Relationships With Clients And Customers - Traditionally, the broker provides a conventional full-service, commission-based brokerage relationship under a signed listing agreement with a seller or "buyer representation" agreement with a buyer, in most states thus creating under common law an agency relationship with fiduciary obligations. Some states also have statutes which define and control the nature of the representation. These are then clients of the broker. Agency relationships in business ownership transactions involves the representation by a business broker (on behalf of a brokerage company) of the principal, whether that person or persons is a buyer or a seller. The principal broker (and his/her agents) then becomes the agent of the principal who is the broker's client. The other party in the transaction who does not have an agency relationship with the broker is the broker's customer. Transactions Brokers - In some states (including Florida), business brokers act as transactions brokers. A transaction broker represents neither party as an agent, but works to facilitate the transaction and deals with both parties on the same level of trust. Dual Or Limited Agency - Dual agency (not allowed in Florida) occurs when the same brokerage represents both the seller and the buyer under written agreements. Individual state laws vary and interpret dual agency rather differently.
  • If state law allows for the same agent to represent both the buyer and the seller in a single transaction, the brokerage/agent is typically considered to be a Dual Agent. Special laws/rules often apply to dual agents, especially in negotiating price (not allowed in Florida).
  • In some states (notably Maryland), Dual Agency can be practiced in situations where the same brokerage (but not agent) represent both the buyer and the seller. If one agent from the brokerage has a home listed and another agent from that brokerage has a buyer-brokerage agreement with a buyer who wishes to buy the listed property, Dual Agency occurs by allowing each agent to be designated as “intra-company” agent. Only the principal broker himself/herself is the Dual Agent.
  • Some states do allow a broker and one agent to represent both sides of the transaction as dual agents. In those situations, conflict of interest is more likely to occur (not allowed in Florida).
Types Of Services That A Broker Can Provide - Since each state's laws may differ from others, it is generally advised that prospective sellers or buyers consult a reputable broker that is affiliated with the State Business Broker association. Some Examples:
  • MPSP Valuation - Most Probable Selling Price Valuation; a form of limited scope appraisal that can encompass a Comparative Market Analysis.
  • Comparative Market Analysis - an estimate of the businesses value compared with other businesses for a similar type. This differs from an appraisal in that businesses currently for sale may be taken into consideration (competition for the subject business).
  • Exposure - Marketing the business to prospective buyers.
  • Facilitating a Purchase - guiding a buyer through the process.
  • Facilitating a Sale - guiding a seller through the selling process.
  • Document preparation - preparing necessary paperwork for "Sale By Owner" sellers.
  • Hourly Consulting for a fee, based on the client's needs.
  • Preparing contracts and leases. (Not in all states.)
General - The sellers and buyers themselves are the principals in the sale, and business brokers (and the principal broker's agents) are their agents as defined in the law. However, although a business broker commonly fills out the form, agents are typically not given power of attorney to sign the offer to purchase or the closing documents; the principals sign these documents. The respective business brokers may include their brokerages on the contract as the agents for each principal. The use of a business broker is not a requirement for the sale of a business or for obtaining a small business or SBA loan from a lender. However, once a broker is used, a special escrow attorney sometimes called a settlement attorney (or party handling) will ensure that all parties involved be paid. Lenders typically have other requirements, though, for a loan. The small business market served by business brokers generally involves the sale of businesses with transaction values less than $10 MM. Mid-market privately held companies will employ firms that specialize in Mergers and Acquisitions, or M&A. However, business brokers do participate in mergers and acquisitions activities when it involves a transaction between two or more smaller companies. Business Brokers and M&A firms do overlap activities in the extremes of their market. These extremes are called the Transitional Market, or TransMarket.
Business Brokers And Sellers – Business brokers provide services to sellers as their client. Upon signing a listing contract with the seller wishing to sell the business, the brokerage attempts to earn a commission by finding a buyer for the sellers' business for the highest possible price on the best terms for the seller. To help accomplish this goal of finding buyers, a business brokerage and an M&A specialist commonly perform the following:
  • Ensures Confidentiality--Brokers have established systems in place to protect the confidentiality of a business.
  • Appraisals--Most business owners have no idea what their business is worth. Business Brokers and M&A specialist are trained in business valuation and can help business owners understand the true value of all their hard work and sacrifice.
  • Market Knowledge--Brokers and M&A specialists make their living selling businesses. They are in the market on a daily basis conversing with buyers. A local business broker understands the local market as well as what a business is worth.
  • Saves time and stress.
  • Listing the business for sale to the public, often on a Multiple Listing Service, in addition to several other marketing methods.
  • Based on the law in several states, providing the seller with a business condition disclosure form, and other forms which may be needed.
  • Preparing necessary papers describing the business for advertising, pamphlets, tours, etc.
  • Advertising the business. Advertising is often the biggest outside expense in listing a business.
  • Being a contact person available to answer any questions about the business and to schedule showing appointments.
  • Ensuring buyers are pre-screened so that they are financially qualified to buy the business; the more highly financially qualified the buyer is, the more likely the closing will succeed.
  • Negotiating price on behalf of the sellers. The seller's agent acts as a fiduciary for the seller. By not being emotionally tied to the transaction, Business Brokers are in a position to more effectively negotiate on a Seller's behalf. This may involve preparing a standard offer to purchase contract by filling in the blanks in the contract form.
  • In some cases, holding an earnest payment in escrow from the buyer(s) until the closing. In many states, the closing is the meeting between the buyer and seller where the business ownership is transferred and the businesses name is conveyed.

Business brokers attract prospective buyers in a variety of ways, including direct mail, listing on the broker's website, listing on specialized global MLS websites and advertising in business periodicals. Using private databases, Brokers also approach known buyers and prospective buyers of similar businesses to assess interest.

The "Listing" Contract - Although there can be other ways of doing business, a business brokerage usually earns its commission after the business broker and a seller enter into a listing contract and fulfill agreed-upon terms specified within that contract. The seller's business is then listed for sale, often on a several Multiple Listing Service (MLS) in addition to any other ways of advertising or promoting the sale of the business. In most of North America, a listing agreement or contract between broker and seller must include the following: starting and ending dates of the agreement; the price at which the business will be offered for sale; the amount of compensation due to the broker.  Brokerage Commissions - In consideration of the brokerage successfully finding a satisfactory buyer for the property, a broker anticipates receiving a commission for the services the brokerage has provided. Usually, the payment of a commission to the brokerage is contingent upon finding a satisfactory buyer for the business for sale, the successful negotiation of a purchase contract between a satisfactory buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller. For small businesses in North America, a commission in the 10% to 12% range is considered "standard" for business brokerage services and is typically paid by the seller at the closing of the transaction. Mid-market businesses generally command a commission range of 3% to 10% as "standard". Similarly, business brokerage commissions are typically paid by the seller at closing of the transaction. As a general rule, the larger the fair market valuation price of a seller's business, the smaller the business brokers commission percentage. Commissions are negotiable between seller and broker. The commission could also be paid as flat fee or some combination of flat fee and percentage, particularly in the case of lower-priced businesses, businesses in the multi-million dollar price, or other unusual business assets. The details are determined by the listing contract. Frequently, advertising, promotion and travel expenses directly related to selling a business are paid for by the seller to the broker at costs. A spending cap on these expenses can be itemized in an agreement between seller and broker. Out of the commission received from the seller, the broker will typically pay most of the remaining expenses incurred, including listing the seller on multiple public and private brokerage Web sites, long distance phone charges, facsimile, clerical support, etc. All compensation to a broker paid by a third party must be disclosed to all parties.  Licensing Of Business Brokers - In the US, licensing of business brokers varies by state, with some states requiring licenses, some not; and some requiring licenses if the broker is commissioned but not requiring a license if the broker works on an hourly fee basis. State rules also vary about recognizing licensees across state lines, especially for interstate types of businesses like national franchises.
Associations And Standards - Some states, like Florida and California , require either a broker license or law license to even advise a business owner on issues of sale, terms of sale, or introduction of a buyer to a seller for a fee. The following require a license to practice as a business broker: Florida, Arkansas, California, Colorado, Georgia, Idaho, Illinois, Michigan, Minnesota, Nebraska, Nevada, Oregon, South Dakota, Utah, Wisconsin, and Wyoming. In all states the broker must be a licensed real estate agent if real estate interest is involved in the transaction or the transfer of real estate interest is a requirement for the sale. Associations Of Business Brokers - The largest association of business brokers in the U.S. is the International Business Brokers Association (IBBA). The second largest is the Business Brokers of Florida. The Association of Professional Merger & Acquisition Advisors is the newest national organization and was formed to bring together business brokers, intermediaries, corporate M&A professionals, and individuals providing transactional support services (such as attorneys, accountants, certified valuation analysts, and banking officers). The APMAA also offers an on-line discussion board/forum where the public can ask questions and get answers from M&A professionals. In addition to the IBBA, BBF and the APMAA, there are several other national associations that serve both the business broker and the public. Many states have their own associations, e.g., the Business Brokers of Florida, Florida Association of Business Brokers, Texas Association of Business Brokers, and California Association of Business Brokers.
“The Confidential Auction really works. John Nelson and NBS presented several qualified buyers that matched our criteria. Leveraging multiple buyers to compete against each other enhanced our selling price and terms.”
-Seller Confidentiality Protected



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