A simple guide to using a business broker

April 4, 2020

A simple guide to using a business broker

What is a business broker?

When it comes to buying or selling a business, a business broker acts as the middleman between the buyer and the seller.

Brokers are trained professionals that help both parties through the entire process, from the initial selling request through to the closing deal.

What do business brokers do?

Business brokers will carry out a variety of tasks during their time working with you, including:

  • Estimating the value of your business: if you’re selling a business, the broker will assess your business by looking at your up to date financials and other necessary information. They will then suggest an appropriate selling range to you. 

  • Listening to your needs: if you are buying a business, they will have an in-depth conversation with you about the size of business you are looking for, your needs, industry and location.

  • Marketing: if you are looking to sell your business, you want to get your business out to as many potential buyers as possible. Business brokers will use a variety of resources to effectively market your business to attract the best prospects. The contract you have with your broker will list the specifics of planned advertising.

  • Pre-screening businesses: brokers can turn down businesses they’re asked to sell for a variety of reasons, which can include being overpriced or because they refuse full financial disclosure. This helps to avoid unnecessarily wasting time and taking risks. They will only introduce you to genuine, pre-qualified buyers or sellers.

  • Assisting with legalities: buying or selling a business can be very confusing, but rest assured business brokers are up to date with the latest laws and regulations. This means you won’t forget to create any important legal documents which could trip you up long term. They can also help you with what to file, where to file it and when.

  • Closing the sale: when both parties have agreed on the transaction, the sale can be closed. This usually takes two to three months. In this time, lawyers work on closing documents, buyers gain access to financing, negotiate leases and more. Business brokers smooth out this process by ensuring all parties are completing necessary work.

How much do business brokers charge?

Typically business brokers charge a commission of 5-10% of the selling price. This may seem like a lot, but when you consider the guidance they offer and the work this takes off your hands it is worth it. Consider this ‘insurance’, as you will have legal protection should anything go wrong.

If this is your first time buying or selling a business, it can be difficult to familiarise yourself with the laws and regulations. Business brokers are experts in these areas and manage the efforts between insurance agents, lawyers, accountants, and bankers.

Why do I need a business broker?

While it’s not a necessity to use a business broker to buy or sell a business, it can be a very lengthy and complicated process without one. Brokers can provide you with their knowledge and expertise every step of the way. 

In addition to this, business brokers already have contacts in a variety of sectors which saves you a lot of time that would have been spent looking for a lawyer, accountants, etc.

There are many more benefits of using brokers’ services, which are listed below.

What are the benefits of using a business broker?

The benefits of using a business broker include:

  1. Legal protection: since business brokers know legalities of buying and selling inside out, you can have peace of mind knowing you are protected throughout the entire process.
  2. A different industry: business brokers can introduce you to industries you may have never considered buying into.
  3. Dealing with difficult questions: if you’re selling your business, you’ll have put a lot of heart, time and money into it, so emotions can run high during the selling process. If sellers need to ask direct or uncomfortable questions, this can be processed through the business broker who will get an answer without ruffling any feathers. One miscommunication between a buyer and a seller can lose a deal, so this factor is particularly important.
  4. Saves time: a broker will only present what is relevant to you. If you’re buying, they will only discuss businesses that fit into what you are looking for. If you are selling, brokers will pre-screen buyers that are a genuine fit with where you want your business to go. Their knowledge and expertise can cut red tape by months, speeding along the process.
  5. Closing a deal: you want to sell your business as quickly as possible, and a broker is here to do just that. Their sole purpose is to sell your business, and the quicker this is done, the lower the risk of staffing issues, competition and your customers finding out. Brokers keep it confidential, meaning businesses can operate as normal.

Hilton Smythe are leading UK business brokers. Whether you’re looking to buy or sell your business, our award-winning team is here to help you every step of the way. We sell an increasing amount of businesses year on year in a variety of industries, from cafes through to garages and ice cream parlours. Get in touch today to find out more.

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