What are the value (and non value) propositions of using a business broker?

May 21, 2024

by an intermediary from Southern New Hampshire University in Boston Metropolitan Area, USA

I'd value the feedback from the "Community" on this question. Do Sellers and Buyers of businesses, and their 3rd Party Service Providers (Accountants/CPA's), Business Attorney's, SBA and Conventional Bankers, Business Advisors, etc...) feel that Business Brokers provide value, or inversely, does their involvement in the deal process, diminish the overall experience? What do you feel are value propositions and misaligned value propositions of the Small Business Brokering profession?

Thank you kindly for your responses.

David.

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Reply by an intermediary
in Campbell, CA, USA

Over the last two years, I have seen many comments on SearchFunder.com about the questionable motives of business brokers, yet I have seen no comments about the motives of attorneys who bill by the hour and get paid whether or not the transaction is completed. Business brokers are the only professionals involved in a transaction who are incentivized to make sure the deal goes together. I have too many experiences with buyers' attorneys putting ridiculous terms/demands in their LOIs. Do they do this knowing the seller's attorney is going to push back, then it's back and forth, back and forth, and back and forth. Meanwhile, their billable hours go up and up and up. A good business broker is incentivized to help bring both sides together to reach an amicable equilibrium and get the transaction across the finish line as soon as possible.

Reply by a lender
in Stuart, FL, USA

Hi David, this is a loaded question. It's like any other vocation in life 20% of the people are really good at what they do and 80% of the people, we all wonder how they get out of bed every day. It's no different in the business brokerage world. As somebody who trains the largest business brokerage firm in the world on SBA lending, I can tell you that a very good business broker can indeed help with the transaction tremendously. Conversely a bad business broker with a chip on his shoulder can get in the way and destroy the deal for everybody. Unfortunately, sometimes you don't have the ability to choose who you want to work with if the seller has already chosen a business broker that's going to be problematic. When we do deals, we usually orchestrate the entire deal and just have the business brokers get documents for us for the most part. The good ones that work with us don't even mind because they know we'll take care of it and close it because we have over a 98% closing ratio. It's all about structuring the deal from the beginning and making sure everybody's on the same page. One of the biggest problems I do see with business brokers, especially if they are transactional brokers, is they just stay away from doing more work than they have to. So, when it comes time to discuss the A/R, A/P, WIP, working capital, seller note structure, and costs associated with the business acquisition outside of the loan, a lot of them just become a ghost with no input which can really make and unfair deal for more than one party. I am still licensed as a business broker although I do not work in that capacity anymore. If you have any additional questions and want some blatantly honest feedback, give me a shout, I’d be happy to help in any way i can###-###-####

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