What Is Business Brokerage?
Business Brokerage is defined by Entrepreneur Magazine as activities related to the buying and selling of businesses. While this succinct definition is true, there are many other duties and responsibilities that must be performed in order for a business brokerage company to be successful. The purpose of this article is to help you gain a better understanding of the activities that successful business brokerage companies engage in on a daily basis.
As an industry, business brokerage came into its own in the 1920s and ’30s. A man by the name of George Wright, Sr. had been a successful auto dealer with the Durant Automobile Company. When the company filed for bankruptcy, Wright was left high and dry with a dealership full of cars. Wright decided to relocate to Florida and then California where he began a real estate and business brokerage firm. George Sr.’s son Russ was drawn to his father’s business and decided to join in him California. From this humble beginning, Wright and his son Russ grew their fledgling business into one of the most successful brokerage firms in the region.
The years following Wright’s success saw the birth of other notable firms such as VR Business Brokers, Transworld Business Brokers, Sunbelt Business Brokers, and Murphy Business Brokers. The successors to the legacy of the Wright family have grown into multimillion-dollar firms representing thousands of clients in closed business sales and mergers. Today business brokerage as an industry accounts for about 1 Billion dollars in revenue and employs over 11 thousand brokers nationwide according to IBIS World.
Since its inception, business brokerage has evolved to include much more than just buying and selling businesses. Many business brokerage firms choose to offer potential clients a wide array of services including:
– Business Valuations – One of the first things that a business owner needs to do when they are considering selling their business is to have a professional business valuation done. Business brokers are trained on how to collect relevant financial business data, synthesize and interpret that data and organize it into a report that gives a business owner a fairly accurate range for what that business will sell for on the open market. Business brokers will also incorporate comparable sales of similar businesses to bolster their valuation projections.
– Business Sales – In these transactions, brokers represent sellers by confidentially marketing their businesses for sale, attracting and screening potential buyers, facilitating the interactions between buyer and seller, assisting in writing and negotiating offers, coordinating due diligence, and closings.
– Business Purchases – Business brokers also help buyer clients to find suitable businesses for them to purchase. This usually involves a broker researching prospects, contacting prospective sellers, arranging and facilitating meetings with prospective sellers, assisting buyers in writing up and negotiating offers, helping a buyer through the due diligence and closing process, and making sure that a buyer smoothly transitions into the new business.
– Business Advising – Sometimes business owners need basic coaching on how to make their businesses more profitable. A business broker can give an owner outside, objective advice on positioning a business to be more profitable and make it much more likely to sell when the time is right.
– Franchise Consulting – Business brokers can connect entrepreneurs with franchise businesses that might be a good fit. When a buyer has a business broker assisting him in a franchise purchase it greatly increases that buyer’s chances of buying into the right franchise and being more successful in the long run.
One other service that some business brokers offer has to do with commercial real estate. Often business owners will have commercial real estate attached to the businesses that they are seeking to sell. This can mean that in order to meet a client’s needs, a broker will have to assist a seller in engaging a commercial real estate broker. If a business broker wants to have more control over the transaction and not have to farm out the commercial real estate brokerage, they can obtain a real estate license and handle the commercial real estate transaction themselves. It is becoming increasingly more popular for business brokers to also be commercial real estate brokers.
Business brokers have several tools at their disposal to help them conduct the many different professional activities that go along with their job. One of the greatest tools at their disposal is the internet. Brokers who are good at research can rely on data from trusted online sources to help them with the performance of business valuations, business listings, business purchase offers, and other related activities. There are also proprietary tools that are specific to particular business brokerage firms. Often these tools include industry resource and valuation guides, customer relationship management or CRM software, business report publishing software, and historic sales research databases. These tools combine to help business brokers be an efficient and reliable source of information for both sellers and buyers of businesses.
Business brokerage, although transactional at its core, should not be limited to just buying and selling businesses. Business brokerage should also be focused on the human element. Relationships are the key to successful and effective business brokerage. A broker who is solely focused on the transaction without regard for the human being behind the transaction is not ethically, morally, or professionally grounded. Brokers have to see beyond the transaction to the human consequences of every decision and point of guidance.
Practically, this means that if a buyer or seller is not best served by a transaction, a broker has a duty to explain this to a client even though it may mean that a deal does not get closed. Brokers should never push a deal through just to get paid at the expense of a buyer or seller’s best interest. The greater good of the individual and the community as a whole must be represented in every facet of the brokerage process.
Business brokerage, therefore, is centered around the process of buying and selling businesses but covers so much more ground than the transaction itself. Good business brokers understand the activities of the brokerage process, know how to execute these activities with great skill and professionalism, and have the relational skills to see beyond the transaction into the needs of each individual client. Finding a good broker who takes all of these factors into account will ensure that an individual has a brokerage experience that meets his or her needs and exceeds their business exit expectations. Ultimately, it should be a broker’s aim to exceed the expectations of his clients in such a way as to make himself indispensable to all of the clients he has the privilege to serve.
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This article is part of the Business Brokerage Resource Library Series.