BUSINESS BROKER

Vancouver Franchises Business Broker in BC

From Wikipedia, the free encyclopedia

Business brokers, also called business transfer agents, or intermediaries, assist buyers and sellers of privately held small 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 potential buyer interviews, discussions, and negotiations with prospective buyers; facilitate the progress of the due diligence investigation and generally assist with the business sale.

Agency relationships in business ownership transactions involve the representation by a business broker (on behalf of a brokerage company) of the selling principal, whether that person is a buyer or a seller. The principal broker (and his/her agents) then become the agent/s 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 an unrepresented party.

Agency relationships with clients and customers

Traditionally, the broker provides a conventional full-service, commission-based brokerage relationship under a signed agreement with a seller or “buyer representation” agreement with a buyer. In most states this creates, under common law, an agency relationship with fiduciary obligations.

Agency relationships in business ownership transactions involve the representation by a business broker (on behalf of a brokerage company) of the selling principal, whether that person is a buyer or a seller. The principal broker (and his/her agents) then become the agent/s 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 an unrepresented party.


Types of services that a broker can provide

Broker services vary widely depending on the practice and skill set of the broker. The most common services provided by a broker to a client are:

  • Assist client in establishing a MPSP Value – Most Probable Selling Price Valuation; the techniques used by individual brokers can vary greatly in this process
  • Develop a comprehensive Information Memorandum on the company; normally a 15-30 page document outlining the business for potential buyers
  • Conduct buyer searches
  • Exposure – Marketing the business to prospective buyers
  • Screen buyers for ability to complete a purchase
  • Coordinate negotiations and provide deal structuring advice
  • Provide overall deal management to guide the client through the entire process
  • Help maintain confidentiality of the sale
  • Hourly Consulting for a fee, based on the client’s needs

Perhaps one of the biggest services provided by brokers is the ability to allow owners to stay focused on running their business during the sale process which can be take on average 6 months to 12 months to complete.


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 following:

  • 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.

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 amount of compensation due to the broker.

Brokerage compensation

There are three forms of Brokers compensation; hourly, retainer, and success fee (commission upon a closing). A broker may use any one, or combination of these when providing services. The most common form of compensation is a success fee commission where 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. Just as major investment banks normally charge a retainer for services, more business brokers have started to embrace this practice as well. The retainer helps covers the upfront costs incurred by the broker to perform services and shows a commitment on the part of the client (seller or buyer) that they are serious. Certain types of merger and acquisitions transactions involve securities and may require that an intermediary be securities licensed in order to be compensated.

In North America, success fee commissions range from 5% to 12%. Usually, the smaller the transaction, the larger the commission.

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.

Leave a Reply

Your email address will not be published. Required fields are marked *


+ eight = twelve