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Business Brokers

Business brokers are often a key component in the buying and selling of businesses.

Business brokers deal with a number of different clients simultaneously. [©Jupiter Images, 2009]
©Jupiter Images, 2009
Business brokers deal with a number of different clients simultaneously.

Business Brokers

Business brokers help to organize an orderly business sale or purchase and often act as a buffer between buyer and seller. A business broker usually represents either the buyer or seller. Most business brokers are involved in the business transaction from beginning to end, referring their clients to other experts for areas beyond their own expertise. They may be involved in valuation of the property on the front end, negotiation of the sale of the business property in the middle, and in the closing of escrow on the back end. Business brokers serve as guides to ensure that a buyer finds the right business or that a seller finds a buyer. As with any broker, their role is to look out for their clients interests in an ethical manner.

What Business Brokers Do

Business brokers usually serve as intermediaries between sellers and buyers for business opportunities, even if they represent one party in the transaction, according to the Arizona Department of Real Estate. Business brokers get involved in and spearhead many of the specific details of a business sale.

Business brokers are often involved in negotiations for purchases or exchanges of businesses. Many small business owners who are closing their businesses, for bankruptcy or other reasons, retain business brokers to make sure that the process is handled efficiently, explains the U.S. Small Business Administration.

Business brokers are negotiators because they can move between parties to iron out conflicts over pricing and other issues, even though they often have one client's interests in mind. They take over the frontline negotiating for that client. They possess the ability to sign franchise agreements, accept payments and arrange for the sale of a business.

According to the International Business Brokers Association, business brokers perform the following tasks:

  • Sell and buy existing businesses
  • Value businesses
  • Prepare businesses for sales or successions
  • Help arrange financing for prospective buyers
  • Assist with franchising and legal questions
  • Assist with private equity buyouts
  • Help grow a business through acquisitions
  • Get involved in marketing the business

 

When business brokers represent buyers as opposed to sellers, they often request confidentiality agreements indicating that the buyer will not disclose information about the business. Some business brokers specialize in different areas of industry.

Regulations of Business Brokers

Some state regulations apply to business brokers because most business brokers deal with real estate transactions. They are involved in real property transfers in addition to lease negotiations and other transaction details. Business brokers in some states are required to have real estate licenses if they are involved in transactions of property. Some states have specific laws regulating business brokers in other ways. In Illinois, for example, business brokers must register with the office of the Secretary of State. Brokers in Illinois are also required to follow certain disclosure requirements.

Concerns about Business Brokers

To protect themselves, those considering hiring a business broker should ask for customer references, check for complaints with the Better Business Bureau and compare business brokers behavior with the ethical guidelines championed by their industry. Individuals should be on the lookout for business brokers who may undervalue a business to rush a sale and engage in other unsavory practices.

The American Business Brokers Association publishes a list of ethical conduct guidelines for business brokers. Business brokers should promise to:

  • Deal fairly with all parties engaged in the business transaction
  • Assist clients proactively with legal and ethical strategies
  • Be up to date on marketplace conditions and trends
  • Not exaggerate areas of expertise, but refer clients to professionals with specialized expertise when require
  • Place funds in escrow and account for them and disburse them in an expedient manner that follows the law

 

The California Association of Business Brokers also has a code of ethics. Its provisions include promises that business brokers will:

  • Not use coercion or deception in order to facilitate a business transaction
  • Use generally accepted means to evaluate a business and properly list it
  • Disclose to a buyer if they also represent the seller in a transaction
  • Not advertise businesses that they don't actually have for sale in an effort to attract buyers

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