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Sunday, December 16, 2007

Business broker

Business broker

Business broker Business broker Business broker Business broker

Business brokers, also called business transfer agents, or intermediaries,
assist buyers and sellers of privately held business in the buying and selling
process. They typically estimate the value of the business; advertise it for
sale with or without disclosing its identity; handle the initial interviews,
discussions, and negotiations with prospective buyers; facilitate the progress
of the due diligence investigation and generally assist with the business sale.

Agency relationships with clients and

Traditionally, the broker provides a conventional full-service, commission-based
brokerage relationship under a signed listing agreement with a seller or "buyer
representation" agreement with a buyer, in most states thus creating under
common law an agency relationship with fiduciary obligations. Some states also
have statutes which define and control the nature of the representation. These
are then clients of the broker.

Agency relationships in business ownership transactions involves the
representation by a business broker (on behalf of a brokerage company) of the
principal, whether that person or persons is a buyer or a seller. The principal
broker (and his/her agents) then becomes the agent of the principal who is the
broker’s client. The other party in the transaction who does not have an agency
relationship with the broker is the brokers customer.

Transactions BrokerS

In some states, business brokers act as transactions brokers. A transaction
broker represents neither party as an agent, but works to facilitate the
transaction and deals with both parties on the same level of trust.

Dual or limited Agency

Dual agency occurs when the same brokerage represents both the seller and the
buyer under written agreements. Individual state laws vary and interpret dual
agency rather differently.

If state law allows for the same agent to represents both the buyer and the
seller in a single transaction, the brokerage/agent is typically considered to
be a Dual Agent. Special laws/rules often apply to dual agents, especially in
negotiating price.

In some states (notably Maryland[1]), Dual Agency can be practiced in situations
where the same brokerage (but not agent) represent both the buyer and the
seller. If one agent from the brokerage has a home listed and another agent from
that brokerage has a buyer-brokerage agreement with a buyer who wishes to buy
the listed property, Dual Agency occurs by allowing each agent to be designated
as “intra-company” agent. Only the principal broker himself/herself is the Dual

Some states do allow a broker and one agent to represent both sides of the
transaction as dual agents. In those situations, conflict of interest is more
likely to occur.

Types of services that a broker can provide

Since each state's laws may differ from others, it is generally advised that
prospective sellers or buyers consult a licensed real estate professional.

Some Examples:

MPSP Valuation - Most Probable Selling Price Valuation; a form of limited scope
appraisal that can encompass a Comparative Market Analysis.

Comparative Market Analysis - an estimate of the businesses value compared with
other businesses for a similar type. This differs from an appraisal in that
businesses currently for sale may be taken into consideration (competition for
the subject business).

Exposure - Marketing the business to prospective buyers.

Facilitating a Purchase - guiding a buyer through the process.

Facilitating a Sale - guiding a seller through the selling process.

FSBO document preparation - preparing necessary paperwork for "Sale By Owner"

Hourly Consulting for a fee, based on the client's needs.

Preparing contracts and leases. (Not in all states.)


The sellers and buyers themselves are the principals in the sale, and business
brokers (and the principal broker's agents) are their agents as defined in the
law. However, although a business broker commonly fills out the offer to
purchase form, agents are typically not given power of attorney to sign the
offer to purchase or the closing documents; the principals sign these documents.
The respective business brokers may include their brokerages on the contract as
the agents for each principal.

The use of a business broker is not a requirement for the sale or conveyance of
a business or for obtaining a Small business or SBA loan from a lender. However,
once a broker is used, A special escrow attorney[2] sometimes called a
settlement attorney (or party handling closing) will ensure that all parties
involved be paid. Lenders typically have other requirements, though, for a loan.

The market served by business brokers generally involves the sale of businesses
with transaction values less than $10 MM. Larger privately held companies are
classified in the Middle Market and will employ firms that specialize in Mergers
and Acquisitions, or M&A. However, business brokers do participate in mergers
and acquisitions activities when it involves a transaction between two or more
smaller companies. Business Brokers and M&A firms do overlap activities in the
extremes of their market. These extremes are called the Transitional Market, or

Business brokers and sellers

[edit] Services provided to seller as client

Upon signing a listing contract with the seller wishing to sell the business,
the brokerage attempts to earn a commission by finding a buyer for the sellers'
business for highest possible price on the best terms for the seller. To help
accomplish this goal of finding buyers, a business brokerage commonly does the

Ensures Confidentiality--Brokers have established systems in place to protect
the confidentiality of a business.

Appraisals--Most business owners have no idea what their business is worth.
Certified Business Brokers are trained in business valuation and can help
business owners understand the true value of all their hard work and sacrifice.

Market Knowledge--Brokers make their living selling businesses. They are in the
market on a daily basis conversing with Buyers. A local business broker
understands the local market as well as what a business is worth.

Saves time and stress

Listing the business for sale to the public, often on a Multiple Listing
Service, in addition to any other methods.

Based on the law in several states, providing the seller with a business
condition disclosure form, and other forms which may be needed.

Preparing necessary papers describing the business for advertising, pamphlets,
tours, etc.

Advertising the business. Advertising is often the biggest outside expense in
listing a business.

Being a contact person available to answer any questions about the business and
to schedule showing appointments

Ensuring buyers are prescreened so that they are financially qualified to buy
the business; the more highly financially qualified the buyer is, the more
likely the closing will succeed.

Negotiating price on behalf of the sellers. The seller's agent acts as a
fiduciary for the seller. By not being emotionally tied to the transaction,
Business Brokers are in a position to more effectively negotiate on a Seller's
behalf. This may involve preparing a standard offer to purchase contract by
filling in the blanks in the contract form.

In some cases, holding an earnest payment in escrow from the buyer(s) until the
closing. In many states, the closing is the meeting between the buyer and seller
where the business ownership is transferred and the businesses name is conveyed.

Business brokers attract prospective buyers in a variety of ways, including
listing limited details of available businesses on their websites and
advertising in business newspapers and magazines. Brokers also directly approach
prospective buyers and sellers to gauge interest.

The "listing" contract

Although there can be other ways of doing business, a business brokerage usually
earns its commission after the business broker and a seller enter into a listing
contract and fulfill agreed-upon terms specified within that contract. The
seller's business is then listed for sale, often on a Business specific Multiple
Listing Service (MLS) in addition to any other ways of advertising or promoting
the sale of the property.

In most of North America, a listing agreement or contract between broker and
seller must include the following: starting and ending dates of the agreement;
the price at which the business will be offered for sale; the amount of
compensation due to the broker.

Brokerage commissions

In consideration of the brokerage successfully finding a satisfactory buyer for
the property, a broker anticipates receiving a commission for the services the
brokerage has provided. Usually, the payment of a commission to the brokerage is
contingent upon finding a satisfactory buyer for the business for sale, the
successful negotiation of a purchase contract between a satisfactory buyer and
seller, or the settlement of the transaction and the exchange of money between
buyer and seller.

In North America a commission in the 10% to 12% range is considered "standard"
for business brokerage services and is typically paid by the seller at the
closing of the transaction. The standard commission is likely to be lower in the
United Kingdom (see Lehman scale). Commissions are negotiable between seller and
broker. The commission could also be paid as flat fee or some combination of
flat fee and percentage, particularly in the case of lower-priced businesses,
businesses in the multi-million dollar price, or other unusual business assets.
The details are determined by the listing contract.

Out of the commission received from the seller, the broker will typically pay
any expenses incurred to do the work of trying to sell the listed businesses,
such as advertisements, etc.

All compensation to a broker paid by a third party must be disclosed to all

Licensing of business brokers

In the US, licensing of business brokers varies by state, with some states
requiring licenses, some not; and some requiring licenses if the broker is
commissioned but not requiring a license if the broker works on an hourly fee
basis. State rules also vary about recognizing licensees across state lines,
especially for interstate types of businesses like national franchises. Some
states, like California, require either a broker license or law license to even
advise a business owner on issues of sale, terms of sale, or introduction of a
buyer to a seller for a fee. The following require a license to practice as a
business broker: Arizona[3], Arkansas, California, Colorado[4], Florida,
Georgia, Idaho, Illinois, Michigan, Minnesota, Nebraska, Nevada, Oregon[5],
South Dakota, Utah, Wisconsin, and Wyoming.

In all states the broker must be a licensed real estate agent if real estate
interest is involved in the transaction or the transfer of real estate interest
is a requirement for the sale.

of business brokers

The largest association of business brokers in the US is the International
Business Brokers Association. The American Business Brokers Association was
formed recently and is growing rapidly. Many states have their own associations,
e.g., the Texas Association of Business Brokers.

The most well known sponsored designations are the following:

Certified business intermediary (CBI) an IBBA designation

Accredited business intermediary (ABI) an ABBA designation

Business broker Business broker Business broker Business broker

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