What is a Business Broker?

If you are planning to exit your business, putting it in professional hands can fetch the best value – plus, it saves a lot of time and effort while helping you avoid those legal or tax-related pain points. Business brokers do these jobs day in and day out. 

So, what exactly is a business broker and how does it help you sell your business at the best price? This post explains everything you need to know about business brokers and the benefits of hiring one.

What a Business Broker Does

Business brokers are firms or individuals handling the sale and purchase of small, main street businesses valued between $100k to $5M (you need M&A advisors for larger deals). Just like you hire real estate agents to manage the sale of houses, business brokers are professional firms that help you navigate the nuanced process and many moving parts of selling a business.

While all business brokers help carry out sales of businesses, they are not all made out of the same metal. Business brokers vary based on experience, industry domains, and the geographic spread they serve. 

The right business broker makes the process of selling a business smoother. 

It drives up competition and transaction price, handles all the nitty-gritty of the sale such as LOI negotiation, process oversight, or data room build-out, and manages marketing, accounting, and legal aspects.

Local vs. National Business Brokers

Local and national business brokers have different levels of reach, industry expertise, and experience. Local business brokers can help you sell businesses valued under $1M to buyers near where your business is located. 

Along with geographical limitations, local business brokers may have limited expertise in certain industries. National business brokers have a larger network of prospective buyers, broader industry expertise, and more experience in working with institutional buyers all over the country. So, they are better suited for larger businesses (valued over $1M) across industries and states.

What is the Role of a Business Broker?

A business broker has the primary role of managing the entire process of selling a business starting from getting your documentation ready to market your business to closing the deal. Selling a business is a more nuanced process than many think. 

Being a business owner you may be already spreading yourself too thin to carry out critical administrative functions, ease out operational challenges, and divide strategies. Now if you abandon those key responsibilities to look for buyers for your business, you risk lowering the value of the business through operational or financial troubles. 

Getting a business broker on board will help you sail through all the moving parts of exiting your business, which includes: 

  • Getting all documents and reports (from operational manuals to recasting financial statements and tax documents) ready 
  • Conducting accurate valuation of your business to set the right expectations 
  • Preparing the confidential information memorandum (CIM) & data room
  • Creating a list of targeted business buyers/investors tailor-made for your business
  • Marketing the business to potential buyers, driving up competition, and discovering the best price
  • Evaluating proposals, carrying out negotiations, structuring a potential transaction, and receiving Indications of Interest (IOIs) 
  • Receiving the Letter of Intent (LOI)
  • Conducting due diligence and closing the deal 
  • Fulfilling transition duties 

The Difference Between a Business Broker and an M&A Advisor

Business brokers and M&A advisors are different mainly because they are suited for businesses of different sizes. 

You have a fair chance of selling a profitable business valued below $1M through a local business broker and between $1M to $5 Million through a national business broker. 

If you have a larger business valued between $5-$100 million, it needs a completely different level of expertise and relationships with different investment groups, which a suitable M&A advisor can offer.  

M&A advisors work on national or even global scales handling large value and complex deals spanning multiple locations. 

At Raincatcher, we have industry-specific M&A experts who have eclipsed $1B in sell-side transactions.

How do Business Brokers Make Money?

Business brokers make money through the small engagement fee they charge to get the ball rolling and a success fee (also called commission) on the final sale price. 

Both the engagement fee and success fee vary depending on the deal size and complexity involved. However, irrespective of the total fee you pay, the right business broker is going to drive up the sale price significantly to make your gains much larger compared to what you could expect to make by cruising alone.

What are the Benefits of Using a Business Broker? 

The main benefits of having a business broker help you sell a business are getting activities professionally managed, attracting multiple bidders to create competition, achieving a higher deal price, getting professional advice on deal structure and tax implications, and smoothening transition.

Selling a business is a cumbersome process with a lot of moving pieces. The purchase agreements can be complicated and it can be quite difficult to reach out to prospective buyers having adequate financial backing.  

The right business brokers have specialized knowledge of all aspects of a sale transaction including valuation, marketing the business to prospective buyers, negotiation, and due diligence. 

The best business brokers like Raincatcher can easily come up with strategic buyer lists based on your business size and industry from their in-house buyer database and outside investor database. This allows them to drive up buyer competition to reach a higher deal value. Also, they can engage with prospective buyers while keeping many aspects of your business confidential. 

Moreover, their specialized legal, accounting, and business knowledge can prevent potentially crippling issues from surfacing later.

Related Content

If you want to know more about choosing a business broker, you may be interested in our detailed guide ‘How to find a business broker’

What should I know before Choosing a Business Broker?

Before choosing a business broker you must know about the industry expertise of that broker, their success rate in closing similar deals, and experience in working with companies of your size and industry. 

Plus, you can dig deeper into the following:

  • Does your business broker have the right credentials or licenses? 
  • How are the testimonials from past clients?
  • Are there any registered complaints against the broker?
  • Does it have a qualified staff or a network to handle the transaction? 
  • Does it work with several strategic buyers/PE groups?
  • Is your business broker endorsed by prestigious institutions like the Inc. 5000? 

How to Get Started With a Business Broker?  

You can directly get in touch with your preferred business brokers through email, phone calls, or by filling out a given form on the ‘contact’ segment of your broker’s website. 

Once you provide all the required details like revenue or type of your business and your contact number through the form, you can expect a callback soon to discuss further. 

At Raincatcher, we offer complimentary consultations for owners of qualifying businesses planning an exit. Our team of business advisors and M&A experts can guide you in exiting your business at the best price. Contact us today for a consultation and explore how we can help you unlock the full potential of your business.