By: Richard Parker: President of The Business For Sale Buyer Resource Center and author of How To Buy A Good AUSTRALIAN Business At A Great Price©
What is a Business Broker/Transfer Agent 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 state to state 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.
I believe that you should absolutely use a business broker! However, it is critical that you use the right one. A business broker will provide you with access to businesses that are available for sale that you would never be able to find on your own. They can narrow the search for you to businesses that fit your criteria and they can help you avoid a lot of wasted time.
The one thing that brokers cannot do no matter how good they may be is to find a business that is right for you. This is something that only you can do. Brokers clearly 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. While this is part of the risk involved in their chosen profession, this does not give you the right to waste their time. Accordingly, they may be somewhat hesitant when working with new clients until you demonstrate your sincerity and commitment to buying a business. There is no doubt that if you are a serious and educated buyer then a good broker will go above and beyond the call of duty to service your needs. 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. In other words, they have the database from which you can search. 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 thereafter for training and assistance. 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 somewhat 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 specifically why you must control the negotiations and use them properly or you may find yourself terribly frustrated.
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. Do not think a broker is good just because your accountant said so. You have to check them out and the only way to do so is through client references and one other test (see "How To Hire The Right One").
Using 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 from their stable 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 a couple more. The reason you want to do this is because they will naturally 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.
Some brokers may try to get you to sign exclusive representation agreements with them. Under no circumstances whatsoever are you to do this! Make it very clear that you will be pleased to work with them and that the best measure that they can take to ensure that they earn a commission from you is to lead you to the right business. 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.
The seller is responsible to pay their commission from the proceeds of the sale. Generally, the commission is ten to twelve percent 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. So, when all is said and done, they don't make as much as you think so don't feel that they are making money at your expense. Good brokers earn their money; bad ones should not be allowed to handle your business.
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.
An Expense That Makes Sense
Even though your broker may earn a handsome commission from the business you buy, they are always at risk of earning zero if you don't buy. Never begrudge their commission; if they do their job, they are entitled to it. Whenever you meet with your broker over coffee or lunch always pick up the tab. It's a good way for you to express your appreciation for them doing work on your behalf not knowing if it will evolve into any compensation. It really is the right thing to do!
This article represents a fraction of what you’ll learn on this topic in How To Buy A Good AUSTRALIAN Business At A Great Price© - the most widely used reference resource and strategy guide for anyone thinking about buying a business. Read a detailed listing of what you'll learn .