As one of Sacramento’s top experienced business brokers, the first question people ask us is, “Do I need a broker to buy a business?” Unfortunately, the answer is not as simple as you’d like. Technically you only need a broker if you want the right price and deal.
If you trust your luck, you can strike out on your own. However, unless you’re an expert in how to broker a deal and know how to find a business to buy, someone could take you for a ride.
Even if the seller has the best intentions, they might overvalue the business. It may be in the wrong location, or there may be 100 things that could go wrong. Our recommendation includes finding an experienced business broker before you start looking.
What Is a Business Broker?
The buying broker acts as an intermediary between buyers and sellers. They serve as an independent third party that manages the best interests of all parties. Together the buyer, business owner, and broker come to a mutually beneficial agreement.
The broker remains impartial as they charge for their services. The business broker fee may consist of a flat rate, an hourly rate, or a percentage depending on the size of the deal.
At Sacramento Business Broker, we will gladly discuss our fees with you upfront. Any reputable brokerage firm should adopt this attitude. If you speak to another firm, and they remain vague on this point, run.
In short, you will need to pay for professional expertise, and your agent will advise you on things like what questions to ask the owner. They’ll also help you set up your business correctly by getting you to think about pertinent questions for when you start.
Related: What Do Business Brokers Do?
Why Use a Broker?
The questions “Why use a broker?” or “Do I need a broker to buy an existing business?” boil down to one element: experience. The complex process has many financial variables to consider. Making a mistake can prove costly and end your business-purchasing dreams.
As an example, a client came to us after buying a business. The mom-and-pop store with two locations looked like a good deal. However, the client felt they didn’t need a broker and hired an attorney to handle the contract details.
Even though the contract was airtight, issues still arose. Unbeknownst to the buyer, creditors were in the process of attaching stock. As a result, the buyer had to pay the debt from the previous owner to prevent a wholesaler from selling the removable assets.
The buyer lost the second location and ended up selling what they had left at a loss. The worst part of the buyer’s experience: They could have avoided the mess with a small advertisement in the newspaper. Had they consulted us before making the deal, they could have started on a clean slate.
Do I Need a Broker To Buy a Business? Why the Answer Is Yes
So let’s revisit the question, “Do I need a broker to buy a business?” In light of the example above, the answer is clearly “Yes.” However, you will find several benefits when working through a broker, including:
- They have familiarity with the local market and community: A good agent fosters networks so that they always have the best possible information. Many businesses change hands without advertising because of an agency’s extensive contacts.
- The brokers involved may specialize: Representing every type of business is challenging, so most brokers specialize in one or two industries. Agencies bring these specialists together to get the best blend of skills.
- They may offer professional valuations: They can give you an objective opinion on the business’s overall worth. You will receive a thorough report on all the business assets, including equipment appraisals.
- They can help you structure an offer: They will assist you in creating a fair offer that will pique the seller’s interest. From there, they may help negotiate and close the deal.
- The brokers can help with mergers and acquisitions: What if the business is not for sale? A professional agent can explain how best to approach your target company and help you negotiate.
- They assist you with site selection: How do you know your business is in the right spot? You cannot know without extensive local and business experience. Choosing an agent makes it easier to find the best site for your new branch.
- They weed out the inadequate opportunities: A broker’s reputation depends on the quality and reliability of their advice. Therefore, before they represent a seller, they will carefully vet them.
- They can assist in getting you financing: As your broker understands what finance companies and banks look for when approving funding, they can help you create a winning proposal.
- They assist with the legalities: Again, the broker’s reputation depends on their diligence. Therefore, they ensure that all the paperwork is in order.
Buying a business can become both an exciting and nerve-wracking experience. The difference between success and failure stems from simply missing a vital step. Seeking expert advice is the best way to future-proof your business.
Business Broker Fees
The answer to the question, “How much do business brokers charge?” varies. The cost depends on the following:
- The deal’s complexity
- How much advice the broker gives
- The amount of paperwork and negotiation
- Whether or not you request a complete business evaluation
However, at Murphy Business Sales, we always give you a fair idea of what costs to expect upfront. Our reasonable business broker fees allow us to serve our community better.
If you wonder, “Do I need a broker?” because you have a tight budget, speak to us. First, let’s see if we can assist you with a basic package of services. In some instances, the broker may be willing to settle for a percentage of the sale price instead.
What To Ask a Potential Broker
A reputable broker will appreciate that you wish to perform due diligence. As a result, they will be happy to answer questions such as the following.
What Qualifies You to Act on My Behalf?
To hire the best person for the job, look for someone with experience in the industry. Ideally, they should also have bought and sold businesses for themselves. It also helps if they are members of a professional association.
As a subheading to this question, you should also ask about their experience with deals you wish to make. For example, someone who specializes in sales for small businesses may not have the skills to deal with substantial corporate mergers.
How Will You Market This Deal?
Listen carefully here because it demonstrates their experience. A well-established firm should have a database to reach out to and also properly develop a strategy to advertise the business online or in print.
How do You Evaluate the Firm’s Worth?
They should use an established accounting method to determine the value of assets. They should also be able to tell you a selling price and what you can expect to pay.
Do You Have References?
Contact clients that they give as references and see how things went. Also, look online at third-party review sites and see how the business fares there as well.
Is There Anything Else I Need to Know Before Signing Up?
Your agent should be upfront about the conditions of working with them. Most firms today request exclusivity when it comes to new contracts. Therefore, find out what happens if you stumble onto an opportunity with a perfect company.
How To Broker a Deal
By now, it’s clear that the answer to “Do I need a broker to buy a business?” is always “Yes.” Having a broker gives you a degree of separation that keeps things civil and ensures that both parties negotiate in good faith.
Now that you understand more about the process, you may be eager to find a business to buy. It would be in your best interest to hire a broker to help you find the right opportunity that offers an ideal way to broker the best deal.
- Brokers often learn first about the sales process. As they represent several clients at once, they will first disseminate the information among their circle. Great business opportunities move quickly.
- Not all business owners want to advertise the sale publicly. They prefer to keep the basic business details to themselves to avoid time wasters. Therefore, you may only hear that the company is for sale when you meet the new owner.
- Brokers understand the stress points for the seller. For example, they may know the current owner needs a quick sale because of a divorce. They understand the areas in which the seller will compromise.
- Your agent has several years of experience in putting these deals together. Maybe you cannot meet the asking price, but you can do something else that is valuable to the owner. A business deal seldom proves as straightforward as meeting the initial asking price.
- Your broker runs their own successful agency. They personally understand the grit and determination you need to run your firm from day one. They may even have made errors that will provide valuable lessons for you.
- Finally, the broker understands what it takes to succeed in your chosen industry. They may make recommendations such as having a critical person handover period to ensure you get the best possible start for your new business.
Get Professional Advice From the Leading Sacramento Business Broker
Now that you know the answer to “Do I need a broker to buy a business?” is “Yes,” it’s time to look at some opportunities. If you want to find a business broker or see what is available in Sacramento or the surrounding areas, contact Sacramento Business Broker.