Understanding the Role and Limitations of Business Brokers

When starting a business, all entrepreneurs dream of one day selling their business successfully. Depending on the size and type of business that you build, you really need to consider working with an expert to help you get the best price and cover all of your bases. There are, fortunately and unfortunately, multiple types of these specialists covering all aspects of the market. Whether you are looking at buying or selling a small swimming pool shop around the corner, a medium-sized manufacturing business or a large software company, a prospective buyer or seller should learn to distinguish between small and large business brokers and a dedicated merger and acquisition (M&A) advisor, such as those associated with Deal Leaders International. Only by understanding their fundamental differences can you be sure of selecting the most appropriate professional for a given task.

Firstly, business brokers act both for the buyer and the seller and generally rely on an agreed percentage of the selling price to generate their income. In practice, they will only receive this commission on completion of the transfer process. Consequently, these business brokers tend to focus on procuring a quick sale within their existing network. At the same time, they must attempt to keep their costs to a minimum and do so by avoiding the high cost of direct prospecting in favour of promoting their businesses- for-sale inventory through their corporate and third-party properties-for-sale websites.

Given the limited exposure, many sellers eventually need to lower their expectations and settle for a price substantially below the figure initially quoted as the current market value or “priced to sell”. Nevertheless, this can be good news for a buyer with limited resources and also explains why business brokers focus on the market’s lower-priced offerings.

Purchasing any business or company can be a very complex and risky process. For example, there may be underlying legal issues, tax commitments and other hidden financial obligations that could prevent or impact negatively on the sales transaction. Under such circumstances, relying on the services of someone with a limited M&A background alone may have its drawbacks. In practice, there is a point at which it will be wiser to consult an experienced M&A advisor rather than solely relying on business brokers. That point occurs when the businesses being sold, or bought, are larger and more complex.

When the stakes are this high, sellers need an advisor who is free to focus solely on their needs, someone who has no potentially conflicting responsibilities to the buyer. Within the mergers and acquisitions world, this is known as a sell-side advisor. Retaining this service will require an up-front consultancy fee which then guarantees the consultant’s focus will remain solely on securing the best possible deal for the seller and not collecting the commission as quickly as possible. 

Nevertheless, the need for business brokers remains. They provide a necessary if somewhat limited service for those who wish to purchase or sell a relatively inexpensive going concern. They are often appointed to act on an ongoing basis as the ‘client’ is not expected to invest in the process and only pays on success. By contrast, an owner of a large, well-established business who is considering future options and wants to explore all possibilities should avoid the small business brokers and contact the M&A specialists at Deal Leaders International. We’re a boutique service provider offering bespoke business broker solutions.

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