Business Broker

A business broker is someone who assists in the sale of a small privately held business. Business brokers typically work with companies with a market value of up to $3 million. Companies with higher enterprise values will typically seek the help of a mid-market boutique investment bank.

Business brokers frequently provide the following services:

• Assist the client in establishing a probable selling price for the business;
• Prepare a marketing document or information memorandum on the company;
• Conduct buyer searches; and
• Coordinate negotiations and provide overall deal management.

Fees for business brokers are typically commission-based on enterprise value and can range from 5% to 12%.

When hiring a business broker, business owners should be wary of the following scenarios:

• Business brokers who come from outside the region and promise foreign buyers who will pay much higher multiples than what is currently available in the market. This is frequently used to sign sellers up for an exclusive engagement and collect large upfront fixed fees for the preparation of an information memorandum or “book.” The broker will not do much to bring legitimate buyers to the table after collecting this large fee.
• Brokers with a fee tail that extends beyond one year after termination. We’ve seen brokers sign up a client and introduce the opportunity to hundreds of potential buyers with little alignment and/or a low likelihood of success. Even if the business does not sell as a result of their engagement, the owner is still obligated to pay the business broker a fee if a deal is closed with another buyer during the fee tail period. In this case, the broker adds no value but still receives a fee for minimal effort.

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