A business broker helps buyers purchase a business that is right for them at a fair market price, whereas selling without a broker may prove challenging. In this review, we discuss the role of a business broker and how they can help buyers secure the best purchase deal possible.
What is a Business Broker?
A business broker is an intermediary between a buyer and a seller during a business sale. A buyer’s business broker, in particular, represents the buyer and looks out for their best interest. Many business brokers offer their services to both buyers and sellers. In fact, they may be able to work out a deal between two clients they represent in some cases.
How Can a Business Broker Help Buyers?
A business broker can help buyers throughout all of the phases of a purchase deal. This includes searching for a business to buy, making offers and negotiating with sellers, completing due diligence, and transferring ownership of the company into the buyer’s name. They also assist with all legal components of the sale s well, such as navigating non-disclosure agreements (NDAs), letters of intent (LOI), and purchase agreements. Below are five key ways a business broker can help you buy a business.
Help You Choose an Industry and Business Type
First, a business broker can help you determine the type of business you should purchase. This usually involves an evaluation of your skills and expertise, location, and long-term goals. In helping you choose an industry and business type, your broker may ask questions such as:
- Why do you want to buy a business?
- What is your education and training background?
- What are your special skills and characteristics?
- What are your interests and passions?
- Where are you located?
- What is your budget and maximum offer price?
This information may also tell you the size of business that is most appropriate for you. Overall, a discussion with a business broker about how to choose a business type can help you feel more confident in your final decision to move forward with a purchase.
Your business broker can also help you evaluate businesses within your industry. Specifically, they can attain sales memorandums, also known as confidential information memorandums or CIMs, that displays a company’s information, including information about the company’s finances, history, employees, growth potential, and more.
Provide a Financial Report for Each Business
It is important to view the financial performance of companies you are considering purchasing. Unfortunately, as you might imagine, many sellers are mindful of who they provide this information. The last thing they want is for confidential information to become public because they showed the wrong person their financial information.
Of course, you may not have full access to the company’s financial and legal information until the due diligence stage, which comes after your offer is accepted and you sign a letter of intent (LOI). However, your business broker can help you attain the necessary financial information for you to formulate a conditional offer for a business you are interested in purchasing. This may involve having you sign a non-disclosure agreement (NDA) to establish trust with business sellers.
Help You Determine a Fair Offer Price
Your broker can help you establish a fair offer price based on the company’s information. Remember, business brokers spend a lot of their time evaluating the worth of companies, and they have a complete understanding of how to correctly price businesses by using a market approach. This is an important benefit for buyers as they can ensure they are not overpaying for a company, which often happens with buyers who do not work directly with a broker.
Assistance WIth Due Diligence
The purpose of due diligence is to ensure that all details presented to you initially before and during the offers and negotiations stages are accurate. If you are not careful, you could miss hidden details or “skeletons in the closet” that the seller tried to keep hidden from you. This could lead to some regret after you purchase.
Experienced business brokers can help buyers conduct a thorough (yet efficient) due diligence process. They may provide a due diligence map that displays the steps involved with due diligence, ensuring no important steps are skipped. In other words, brokers help turn every stone. This allows you to proceed to closing the sale with confidence as you know that there are no hidden surprises waiting for you after you officially sign the purchase agreement.
Help You Find Financing (if Necessary)
A business broker can also help you find financing if you need it to complete the purchase. Of course, this may not be necessary if you intend to purchase the company with a complete payment upfront. However, in so many cases, financing is required. Business brokers understand what qualifications you will need for financing from a financial institution. In some cases, they can also help buyers facilitate a deal where the seller provides the financing and the buyer makes regular payments for the company until the purchase is complete.
Should I Work With a Business Broker When Buying a Business?
It may be tempting to try and find a business to buy all on your own or with only the help of your attorney. In fact, your attorney may even tell you they are all you need, but this is far from the case for many buyers.
An experienced business broker has the best understanding of how to properly assess the value of company’s you are considering, and they are more knowledgeable and experienced about the intricacies and complexities of the sales process. Ultimately, if you simply want a more reliable purchase in which you can feel confident with the valuation and details of the company, then you should work with a business broker.
Are you Ready to Buy a Business?
Allow us here at Sigma Mergers and Acquisitions to make the process of buying a business easy for you. We help throughout the purchase process, from determining the type of business that is best for you to assisting you with the due diligence and closing stages. Contact us today to get started.