What is a Business Broker and Should You Use One

A business broker is similar to a real estate broker to the extent that they try to put buyers and sellers together. Instead of real estate being sold, they focus on businesses. The criteria to become a business broker varies from country to country and their individual training, history, specialty and area of expertise are things that you must investigate. Some brokers work independently while others work for a brokerage company. Business Brokers work on commission and if you do not ultimately buy a business then any work that they have done for you is not compensated. Brokers prefer to work with knowledgeable buyers and if they have to spend their time educating you then they cannot make money. They can be an effective tool for you to use if you can provide them with a clear mandate of what it is that you are looking to buy. Avoid generalities; explain your strengths, weaknesses and objectives and never mislead them.

Understanding Their Challenges

Ninety percent of the potential buyers that brokers work with never buy a business. That is why they may be hesitant when working with new clients until you demonstrate your sincerity and commitment to buying a business. Be respectful of their time and realize that they have to make a living. If at any time you decide to drop out of the hunt to buy a business then let them know immediately. Conversely, if you do not feel that they are extending their best efforts on your behalf then find another one.

How They Can Help You

There are two significant ways that a broker can help you. First, they can provide you with listings and information on businesses that are available fro sale that you would not discover on your own. Secondly, they can be "used" as the "bad guy". Once you get into negotiations with a seller you should let the broker deliver any bad news or commentary that you may have. The reason for this is because you are going to need the seller's help in completing the deal and for training and assistance after that. By letting the broker deal with the bad news you can maintain the integrity of your relationship and keep yourself in a third party position if renegotiations are needed.

How They Can Hurt You

If you use the wrong broker they can hurt you significantly. They will be a monumental waste of your time. They can send you looking in the wrong direction altogether. They can try to work both parties and may not make you privy to everything that they are discussing with the other broker. If they represent both you and the seller their agenda may not be upfront and they could very well be in a conflict of interest position. This is why you must control the negotiations and use them properly.

Where To Find One?

Check your local classifieds to see which brokers seem to have the most prominence and exposure in the "Businesses For Sale/Business Opportunity" section. Start by calling these. Also, if you are aware of any business that have recently changed ownership, call the new owner and ask them for a recommendation. Speak to lawyers, accountants, friends, family, businesses associates and ask them if they can suggest anyone.

How To Hire The Right One?

Before you hire an individual broker arrange to meet with the owner of the brokerage firm. Let them know as much as possible about your goals, experience, wants and needs. Have them suggest a broker to you who they believe will fit best with you. Do not allow yourself to meet with the broker that they may recommend yet. Tell the owner that you prefer to contact the broker to set up a meeting.

When you call a potential broker, if they do not return your call within 24 hours forget about them as a candidate. When you do speak with them, don't tell them that you met with the owner and don't agree to go to their office to meet them. Tell them that you want to meet them outside. Find out where their office is and where they live then arrange to meet them 20 miles in the opposite direction at a weird hour (i.e. 7:00 am on a Sunday morning). This technique will demonstrate very quickly how committed they are to getting you as a client.

Checking Their References

Get the names of buyers and sellers that they have worked for in the past. Once they give you the list of 4-5 of each, ask them for some more. The reason for this is because they will give you the names of people that they believe are pleased with them so try to get some additional ones. Contact each one of these and ask them if they could tell you what they believe the broker's strengths and weaknesses are. Be sure to ask each one if they were going to buy or sell a business in the future would they use them again. Tell them the approximate price business you are looking for and ask if they feel that the broker is well suited for your needs. Ask them what it is specifically that the broker did well or poorly for them.

Exclusive Agreements

Some brokers may try to get you to sign exclusive representation agreements with them. Do not do this. Some brokers may request an application fee. If you believe that the broker is right for you then you can consider it if it's a small amount. They must put in writing that if they do not perform their duties then the money will be refunded, no questions asked and when you buy a business if they are involved in the transaction then they must also refund the money. They will ask you to sign Confidentiality Agreements for any individual listings they show you. This is for their protection and it is only fair if they show you a business first, then they should make the commission if you buy it. Have a lawyer review it briefly in any case.

Their Commission

The seller is responsible to pay their commission from the proceeds of the sale. Ask the broker to send you a copy of the agreements that they have in place with sellers so you understand the terms and conditions of their agreements and to see if you have any exposure whatsoever. Generally, the commission is 10% of the total deal regardless of the terms of the agreement and this amount is split between all of the brokers involved. Furthermore, if they work for a brokerage company, part of their share goes to the company.

What If They Don't Perform For You?

It's very simple; if you do not feel that the broker is working out well then find another one. Remember, they are entitled to receive a commission for any businesses that they may have shown you, so when you hire a new one give them all of these details and have them document how the broker's commission will be split in the event that you buy a business that your previous broker introduced to you.

By Richard Parke Source: bizbuyerinfo.com


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