Selling an Established Business with a Business Broker

selling a business shaking hands

When people open up a new business, they do so expect things to go well. They have big dreams, comprehensive plans, and expect to turn a nice profit. Sometimes things work out exactly as planned and the business is an enormous success. In this situation, a business owner may want to sell their thriving business for a hefty profit.

Unfortunately, things can also turn out the opposite as planned. Even with a well-thought-out business plan a business can end up not doing as well as the owner expected. In this case, business owners may wish they were not the owner of the business. This is when can come in handy.

What is a Business Broker?

In both situations, the owner of the business is looking to sell. This is when a business broker can come in handy. A business broker is someone who specializes in helping people sell their established business. This professional can also help people who want to buy an established business.

The term business broker is interchangeable with the term business transfer agent. Some people prefer the term merger and acquisition advisor. All three titles can be used to refer to a person who helps people buy and/or sell businesses as a career. This person is a middle person between someone who wants to sell a business and a person looking to buy a business.

The Benefits of a Business Broker

When selling or buying a home, a person uses a real estate agent to help the process go smoothly. The agent watches out for the personal interests of the person they represent. This is why people who want to buy or sell a business use a business broker. The broker helps the process go as planned and watches out for the best interest of their client.

An experienced business broker is worth their weight in gold. For those looking to buy a business and those wanting to sell a business, this person can offer guidance throughout the process. They can also give a person professional business-related advice and may be able to offer helpful resources. Brokers who have been in businesses for a while will have many connections that can help both parties.

Selling the Business for the Right Price

What price should a person list their business for sale? A professional business broker can help a person crunch the numbers. The broker will help the person test the net worth of the business and figure out what the asking price should be.

Business brokers often have a wealth of resources in their pocket. They may know a finance professional, multiple accountants, several business attorneys, and other types of professionals who will be needed to help determine the value of a business. Later on, these connections can help facilitate the sale.

When coming up with the business valuation, or the amount that the business is worth, the broker has a few different avenues to consider. There are three popular ways to value a business. One is the asset approach, the second is the income approach, and the third is the comparable transactions approach.

Using the asset approach the broker will subtract the business liabilities, or debts, from the business assets. This means that if the business has a million dollars in assets, but owes half a million dollars in debts, the value would be set at half a million dollars. The asset approach is a simple way to value a business, but some people prefer a different method.

The second method is the income approach method of valuing a business. This one can get a little complicated, which is why a business owner needs a professional to work through the numbers. This method divides the net operating income by the capitalization rate and uses projected future earnings.

The third method of determining the value of a business is to use comparable transactions. This means that the broker will research other similar businesses in the same niche and see at what price those businesses recently sold. The value will be comparable to the sales of similar businesses. This method is often used in real estate to help determine home values when agents look at comparable houses that recently sold.

What is The Price for Business Broker Services?

Just as real estate agents work on commission, most business brokers do the same. The broker will present a contract to the client they represent. This contract will list important terms, such as any broker fees or the percent of the commission that they charge. Many brokers do not charge a fee at all unless the business sells.

When a business broker works on commission it motivates them to get the business sold quickly, and at a high price. Keep in mind that the higher the selling price the bigger their commission for the agent. This is one of the many reasons that a broker is watching out for their client, as they want their client to make as much money off the business as possible. In doing so, they get a nice commission. This is a win-win for both the seller and the broker.

Using a Broker is Smart Business

In conclusion, business owners that want to sell their business should use the services of a business broker. The broker can help put a value on the business, they can help determine the selling price, and they likely have a huge list of resources available in their pocket. Business brokers want to make sure that the seller gets as much for the business as possible so that they themselves can make a nice commission.

The broker will know how to market the business, can connect the seller to potential owners, and can guide both parties through the entire process. The broker can also keep things running smoothly. If there ends up being a snag somewhere along the line, they will have the knowledge and resources to fix the issue, and get the ball rolling again. In the end, smart business owners use the services of a business broker to sell their business.