Business broker

From Wikipedia, the free encyclopedia

Jump to: navigation, search

A business broker is a person or firm that acts as an intermediary between sellers and buyers of businesses.

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.

Contents [hide] 1 Agency relationships with clients and customers 1.1 Transactions Brokers 1.2 Dual or limited Agency 2 Types of services that a broker can provide 3 General 4 Business brokers and sellers 4.1 Services provided to seller as client 4.2 The "listing" contract 4.3 Brokerage commissions 5 Licensing of business brokers 6 Associations of business brokers 7 References 8 External links

[edit] Agency relationships with clients and customers

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.

[edit] 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.

[edit] 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 Agent.
• 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.

[edit] 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:

• 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" sellers.
• Hourly Consulting for a fee, based on the client's needs.
• Preparing contracts and leases. (Not in all states.)

[edit] General

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.

[edit] 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 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.
• 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.

[edit] 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.

[edit] 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 parties.

[edit] 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, Florida, Georgia, Idaho, Illinois, Michigan, Minnesota, Nebraska, Nevada, Oregon^[4], 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.

[edit] Associations 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

• Master business intermediary (MBI) a VR designation

[edit] References

1. ^ Maryland's Agency Disclosure form with types of agency allowed
2. ^ | What does a Business Escrow Attorney do?
3. ^ http://www.re.state.az.us/
4. ^ http://faqs.rea.state.or.us/absolutefm/?f=110

[edit] External links

• IBBA International Business Brokers Association
• ABBA American Business Brokers Association
• TABB Texas Association of Business Brokers
• Carolinas - Virginia Business Brokers Association
• Florida Department of Business and Professional Regulation