Should You Use a Business Broker?

Business brokers, bring the buyers and sellers of businesses together. A fair percentage of business owners in Australia choose to use a business broker rather than sell a business themselves, but  business owners do handle sales on their own. Brokers work on commission (usually between $3,000 to $7,000 minimum or between 3% to 10% of the total sale price including stock, which ever is the greater and are under contract with the seller. This means that the broker represents the seller's interests and benefits most by getting the highest possible sales price -- something to remember when you're buying a business.

To locate a business broker in your area go to the Broker area on this site, or ask your solicitor, accountant, banker or other advisor for a referral.   Try to use a broker who specializes in business sales -- in other words; avoid someone who does it part-time. Whether you're a seller or a buyer, look for a broker who asks a lot of questions. If you're selling, this means that the broker is looking for information to help you come up with a fair price for your business. If you're buying, it means that the broker wants to find out what you want and how much money you have to spend.

You don't need to list your business with a business broker or agent in order to sell it.   You may already have a good idea as to the price and who the likely purchaser of your business would be — perhaps a key employee or a relative — in which case the power of a broker might not be necessary, however you do need to consider both sides of "do you" or do you not" use a business broker.

Advantages of a Broker

If you don't already have a buyer lined up, a business broker can guide you through the process of selling based on experience gained from many similar transactions. The advantages of a broker are their experience and knowledge of how to price, present and negotiate the sale of your business.

A broker  can contact likely purchasers (including competitors, suppliers, major customers, and purchasers known to the broker) directly and tell them the key facts about your business, without "naming names" until the contact has shown definite interest. The broker can also screen interested parties for financial ability and other criteria that you specify, so you won't waste time talking to unqualified buyers. Brokers can normally close a deal faster than the owner by simply being able, through experience, "Pick the tyre kickers" and therefore devote more time to the real buyers. The broker, when a buyer is found, also prepares the contracts for sale which is of some saving although it is wise to have your solicitor vet this contract before you sign.

As with any professional, it's a good idea to ask the broker about recent sales he or she has handled, and for the names of satisfied clients you can contact. Make sure you follow up on these references. The main advantage to using a broker is experience, and you want to be sure your broker has some.

Here are some things a good broker can do for you:

Match buyers and sellers: If you're a seller, a broker can evaluate buyers and only bring qualified buyers to you. If you're looking to buy a business, a good broker will ask you lots of questions and know exactly what you're looking for. He or she may even be able to help you decide what kind of business might be best for you to purchase, given your resources, abilities, and interests.

Come up with a fair market value: If you're selling, a broker will have a database on previous sales and also a good understanding of what the market will pay for your business. Brokers normally have a good working relationship with accountants and solicitors and therefore will be able to discuss price and conditions for the sale on your behalf with both of theses key advisors.

Facilitate the negotiating process: Since selling a business is at least, emotionally charged, you'll benefit greatly from a go-between who can handle all aspects of the transaction while keeping each party cool. A broker can speak more candidly to each party involved in the transaction than they could otherwise manage on their own.

Shield you from publicity: A good broker will be discrete about the sale of your business. Employees may get nervous if they learn that a business is for sale. Clients and creditors may get nervous with you if word gets out that you are selling.

Disadvantages of a Broker

Very small businesses may find it hard or unviable to locate a Business Broker willing to take on their listing because brokers nearly always have a minimum fee of between $3,000 and $7,000 no matter how small the business. Business which are over this minimum fee size attract a commission based on a percentage of the sale price usually between 3% & 10% of the total sale price including stock.

Broker don't do: The seller supplies and pays for accountancy information like the abridged profit & loss statements from his accountant. The plant and equipment lists, any documentation and any advertising money are all supplied by you the business owner.

Fees and listing agreements: As you'd expect, the main drawback to using a broker or other agent is the fee (between $3,000 to $7,000 minimum or between 3% to 10% of the total sale price including stock, which ever is the greater). You'll be expected to sign a listing agreement, either an open listing or a sole agency agreement which will lay out the fee schedule, advertising (paid by you) and period of time if sole agency. Remember if you agree to a sole agency the broker must be paid if a buyer materializes during the listing period, regardless of who actually finds the buyer. Make sure the brokers' fees are contingent, meaning that they are paid only if and when the business is sold.