In most sales of businesses, the business broker represents the seller. This is particularly true when a buyer is dealing directly with a business broker that has the listing for the business for sale. This business broker’s primary responsibility is to look out for the interests of the business owner and business being sold. Even if you are working with a business broker who is co-brokering the sale with the listing broker, the business broker may still be representing the seller, not you. Who the business broker represents should be spelled out in the confidentiality agreement or non-disclosure agreement (NDA) that you normally sign before you are given confidential information about the business.
If you are like most business buyers, you’ve never bought a business before. So you may not be knowledgeable or experienced in the process. Some buyers turn to their attorney and/or accountant for business advice. These professionals are knowledgeable and experienced in their area of expertise – the laws concerning business sales and analyzing the financial statements of a business, respectively. Use them for advice in their area of expertise, but not for advice in areas outside their area of expertise. A business broker, or a businessperson who has successfully owned a business in the type of business you are looking at, may be a good source for business advice.
Business brokering requires its own area of expertise. A business broker needs to understand financial statements, the operation of a business, the process of selling a business, knowledge of the laws involving the sale of businesses and real estate, financing, due diligence, business valuation, property sales and leasing, negotiation and sales. My experience includes owning and operating two businesses with about 25 employees each and millions in sales for over 20 years. I have an MBA, finished a year of law school, earned a Certified Business Intermediary designation, and am a licensed real estate broker. Other business brokers have similar backgrounds. Using a broker when purchasing a business can help you avoid big mistakes and buy the business at a better price.
It may, or may not, cost you something to have a business broker represent you. BayState Business Brokers is a member of BBANE, a group of business brokers who co-broke their businesses for sale. We can represent the buyer in BBANE deals. In this situation, we are paid out of the deal in the same way that we would be if we were representing the seller. There are other business brokers who will co-broke with us and we are, again, paid out of the deal. But, some business brokers do not co-broke and some businesses are not sold through intermediaries. In these sales, you would need to compensate the business broker for their services on your behalf.
For most business buyers, buying a business is one of the most important financial transactions of their life. It is also one in which they may not be experienced or knowledgeable. If this describes your situation, find a business broker to represent you. The cost is cheap compared to the cost of making a mistake or paying too much for the business.