Pros & Cons of Using a Business Broker
In the modern corporate world, businesses, like the products they sell, change hands fairly frequently.
When such a transaction goes down, it’s often business brokers who are responsible for negotiating and closing the deal. Business brokers are skilled professionals who act as the middlemen in high-level business negotiations regarding the buying and selling of companies, and can act on the behalf of the buyer or the seller.
Because their skills are quite specialized, business brokers often charge quite a hefty fee for their services. While this can be justifiable, it is important to understand fully the role of a business broker in buying or selling a business, and all the advantages and disadvantages that making use of these services can provide.
One of the most valuable services a business broker can provide involves the accurate valuation of the business up for sale. Business brokers can use their extensive knowledge of the industry to make a comprehensive assessment of the business and determine a fair price for both parties. As businesses are complex entities, and are often comprised of many assets that affect their values, arriving at an accurate value can be a difficult task without the help of a business broker.
Presentation of the business
When working for the seller of the business, business brokers can offer considerable advantages in the area of presenting the business for sale. As brokers know the market and have experience in the various aspects of a business that appear attractive to potential buyers, they can assist in creating a package that will generate interest, allowing for the business to be viewed in its best light.
When attracting initial interest for a sale, the databases and client networks that business brokers build up can be invaluable, making it much easier to generate interest than just dangling your business out on a line and hoping for a bite. Brokers can also help with making business listings on relevant databases.
Closing the deal
Where interest is received, business brokers can use their negotiation techniques and business acumen to turn that interest into a real sale. By attracting a little healthy competition among potential buyers, as well as working as an intermediary between buyer and seller to shape and reshape the deal into one that works for both parties, the business broker can help to make the deal progress to a satisfactory conclusion for all parties.
Once a business deal has been successfully negotiated as far as both parties are concerned, there are still a number of details and procedures to be taken care of before the sale can be considered final. These can be some of the most confusing aspects of the sale to business owners, so the expertise of a business broker can prove useful in this regard.
Of course, there are some cons to making use of a business broker. Foremost among these is probably the cost involved. Most brokers will charge a commission of up to 10% on the final sale price – quite a hefty sum, particularly where large sales are concerned. If there services are necessary and well performed, this can be a worthwhile investment to make, but considering a For Sale By Owner (FSBO) transaction can be an alternative method to avoid these costs.
Qualifications and skill levels
Naturally, all business brokers are not created equal, and qualifications are not as important as experience and affinity for the job. As such, especially when choosing a new broker, it can be difficult to tell how good they are likely to be at their job. Considering the investment they represent in the form of the commission on the sale, this is something to be considered.
Most business brokers tend to work for the seller, so when buying from a broker, it’s important to remember that his interests (and his commission) are likely to be one-sided. While it is the broker’s job to liaise with buyers and assist them in closing the deal, this does not change the above fact.
Control of sale price
Finally, when a sale is handed over to a business broker to manage, the price at which the sale goes down is generally dependent on the broker’s incentive to sell. This can be affected by how quickly the broker himself needs money, or the size of his commission. Either way, it’s important to remember that, while the broker represents the interest of the seller, he is not the seller himself – at the end of the day, the two parties walk away with very different amounts of money.