The potential for mistakes when buying or selling a business is high, and the process can be complex and time-consuming. In addition to the sheer amount of work involved, for most people, a business purchase or sale will be the largest single transaction they ever make. So sometimes, emotions get involved, too.
For these reasons and others, it’s a good idea to get some help, and a business broker can be a good place to start.
What does a business broker do?
Business brokers have specialized knowledge of the buy-sell process, including valuation, negotiation, and due diligence. If you’ve ever bought or sold a home, you can think of a business broker a little bit like a real estate agent, except buying or selling a business takes longer and is much more complicated.
A business broker works hard to match the right buyer to the right seller. Because they usually work on commission, a broker would rather spend extra time finding the right parties to a transaction than hopping on a deal too soon and watching it fall through.
Brokers may work as part of a larger brokerage firm, in partnership with one or two other brokers, or independently. They might focus on businesses of a certain size or within a particular industry.
A business broker can also help you assemble a team of professionals to guide you through a transaction, including an experienced business attorney and an accountant.
Maybe most important, a broker is the only party involved in such a transaction who can work with all the other parties involved. So if things start to go sour, it’s often the business broker who can bring the parties back to common ground and move the transaction forward.
Through hundreds of business transactions, the attorneys at Joyce & Bary Law have worked alongside business brokers to ensure successful deals for our clients.
How can a business broker help me sell a business?
You’ve worked hard to build your business, so if you’ve decided to sell, the last thing you want to do is undersell it or get involved in a transaction that doesn’t ultimately work out. Here’s how a business broker can help:
Find qualified buyers
Business brokers have large networks of buyers, which makes finding someone who is interested and qualified much easier. They can separate serious buyers who have the financial resources to buy your business from those who will waste your time.
Protect your confidentiality
If you’re putting out feelers to potential buyers to try to sell your own business, word is likely to get out. That by itself can affect the value of your business and sink a sale. In addition, lots of critical information is going to change hands during a transaction that you’ll want to keep shielded from clients, employees, vendors and competitors.
A broker will keep the sale confidential while marketing your business and searching for a buyer, ensuring that sensitive information is protected so you can share the news of the sale with the right people at the right time.
Secure a favorable price
What’s the first thing you want to know if you’re selling your business? How much it is worth, which is generally not as straightforward as you might think. First, business owners often overvalue their own businesses, and that’s understandable. All the more reason to have a broker put an objective eye on it before you go to market.
To arrive at a price for your business, a broker will consider many factors. Of course they’ll look at revenue and property, but they’ll also consider the value of intangibles such as reputation and experience. They’ll also weigh growth projections and current market conditions.
Guide you through negotiations
A business broker can help you evaluate an offer and counter, if necessary, to achieve more favorable terms. Because of their experience, market knowledge and objectivity, they can often come up with ways around an impasse that may not be obvious to a buyer or seller.
Assist with due diligence
A serious buyer will research your business thoroughly before the sale. A business broker can help you prepare for that before you’ve even identified a potential buyer, simplifying the process and making your business more attractive.
Not only can the broker help gather any documents — financial, legal or otherwise — that need to be shared with the buyer, but an experienced broker can help you obtain any documents that might be missing or provide explanation for anything that needs clarification.
Allow you to focus on running your business
If you’re like many business owners, you are the point person for many of the critical functions of the business, including administrative tasks, accounting, strategy or even day-to-day operations. If you take your eye off running your business while you’re trying to sell it, you run the risk of harming your business in the process, reducing your return from the sale. The services of a business broker can help prevent this common scenario.
How can a business broker help me buy a business?
If you’re on the other side of the table, a business broker can be just as invaluable to your transaction.
Find the right business
Some potential buyers start the process knowing exactly what they want. Others aren’t sure what they’re looking for. A business broker can help you narrow your focus so you give attention to the businesses that would best suit your experience, goals, and financial resources. A broker can also help you analyze growth potential and current market conditions, sometimes identifying opportunities you might not otherwise have considered.
As you’re looking, your broker will often be able to help you sniff out red flags that might otherwise be hidden until due diligence or even later. This can save you time and money going after businesses that aren’t right for your situation or may have problems.
Express intent to buy
If you find a business you’re interested in, a business broker can help you approach the seller so that you can begin further negotiations and fact-finding. Your broker, using knowledge of the market and the purchase prices of comparable businesses, can also be invaluable in helping you determine how much to offer. The broker’s objective eye will help ensure that the price you propose isn’t too low to be insulting to the seller or too high to make it a good value for you.
Verify the facts of a business
Once you’ve made a good-faith offer, a business broker can help guide you through the lengthy and critical due diligence process. Your broker can help you gather tax and financial documents, leases and contracts, vendor and client information, and inventory and employee records. A broker can also help you obtain the organizing documents of the business, such as operating and shareholder agreements or articles of incorporation.
If you don’t have access to all the capital or financing you need to purchase the business, a broker can advise you on different financing options, including loans, private investors, and seller financing. They can also help you negotiate terms and acquire documentation of your financial worthiness for the seller’s review.
As the due diligence process proceeds, you will learn things about the business that might affect the terms of your initial offer. Your broker will help you evaluate this new data to determine how it might play into the overall transaction. This could mean making adjustments to the deal or requesting more information. Having a broker on your side helps you reality-check each of these issues, as well, so you don’t overlook anything important or make too much of something that’s really not a showstopper.
Work through compliance issues
Brokers who work with businesses of similar size or in one or a few industries are familiar with licensing, permitting, and compliance requirements for those businesses. Your broker can prepare you for those and ensure that the necessary documents are in place, helping you avoid violations and potential fines.
Will I also need a business attorney?
While business brokers do have experience with contracts and agreements, they are not experts and they cannot defend those agreements in court. They often have access to contract templates that might give you some ideas, but an attorney is really your best protection from unnecessary risk. Whether you’re buying or selling a business, an attorney will help you build off-ramps into your agreements that will allow you to exit a negotiation if certain conditions and contingencies are not met.
The representations and warranties are a most critical part of any buy/sell agreement. If you are buying a business, an experienced business attorney will help include in the agreement the representations and warranties needed to confirm you are getting what you pay for and expect to receive without unexpected strings attached. If you are selling a business, your attorney will help you understand and comply with the representations and warranties you will be making as part of the transaction.
In addition, if you’re purchasing a business, you’ll want your attorney to review any agreements or contracts that are currently held by the business so that any clarifications or changes can be stipulated in the final purchase agreement. You should also engage an attorney to create an entity for your new business, act as your registered agent, draft an operating agreement, and set up any other contracts you’ll need to use as part of your business operations.
Contact Joyce & Bary Law for your business law needs!
Whether you’re buying a business, selling one, or operating an established business, the Joyce & Bary team can help. We offer a full range of business legal services and can connect you with brokers to help you buy or sell. Contact us today to set up a consultation.