Business brokers are involved in the purchase and sale of businesses. Most of them legally represent sellers not buyers. They are however obligated by the law to be fair, honest and caring with buyers. In practice, brokers work mostly with buyers. They have to assess the buyers' capacity to take over a particular business and be successful at it. Honest and professional business Intermediaries search for win-win deals.
Unlike real estate deals, business deals can bring a lot of value to both sellers and buyers at the same time if there is a fit between the buyers' personalities and capabilities and the businesses available for sale. Buying a business that is not the right business for the buyer is a big mistake even if it is a bargain. On the other hand, a buyer can over-pay for a company and still end-up very successful and make a lot of money.
There are a lot of advantages from both buyers and sellers perspectives in using a competent business broker.
From a seller's perspective:
- Using an intermediary saves a lot of valuable time for the seller: The seller can continue to focus on his/her business to avoid any disruption and the broker searches and qualifies buyers. Brokers have tremendous experience qualifying buyers. When sellers try to do sell their businesses themselves, they generally spend too much time with wannabe buyers who will never buy a business in their lives (90% of potential buyers according to statistics in the US) and become very frustrated by the process. They finally end-up giving up on the idea to sell the business and find other alternatives.
- Using a broker increases the possible sale price of a business and shortens the length of the sale period: brokers have connections and tools to advertise the business to a very large audience. As a result, they have a higher chance to find the right buyer who is willing to pay the highest price for the business and still be very successful at it.
- Using a broker protects the business confidentiality: brokers do not advertise the name or the location of the business available for sale. They only provide detailed information about businesses to qualified buyers who have showed motivation, financial and technical capabilities to purchase the business and who have signed a confidentiality agreement. When sellers try to do it themselves, they generally put their sensitive business information into the wrong hands such as competitors and others who could use that information to harm the business.
These are only a few of the benefits business sellers can receive from working with professional business Intermediaries .
From a business buyer's perspective:
- Buying a business represented by a broker insures that the business seller is serious enough about selling his business to employ an intermediary. A huge number of business buyers spend tremendous time, money and efforts on the purchase of a business just to have the seller having seller's remorse and changing his/her mind about selling the business right before closing.
- A broker can help the buyer understand their own needs. Most buyers don't know what businesses they should be buying. Brokers have experience dealing with people just like head hunters. They interview business buyers and try to understand their strengths and weaknesses to be able to help them decide.
- Intermediaries generally help buyers write offers and letters of intent for businesses. Buyers can chose to have their lawyers draft the offer for a business and then present it to the business broker. This is however a high cost alternative especially that there is no guaranty that the seller will accept such an offer. A more cost efficient alternative is to work with the broker to draft an offer that is conditional on your lawyer's approval and then have it revised by your lawyer if it' s accepted. This alternative applies especially for smaller businesses.
For more information about business brokerage, you can explore our other article about Business brokers in Ontario.