Selling your Business--DO BUSINESS BROKERS EARN THEIR COMMISSION???


Posted by: Fernando Simo in Selling Your Business on Aug 07, 2009

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Ok, so what in the heck do Business Brokers do to EARN a living??  I really think that very few people truly understand how they add value to the process of selling or buying a business.   Although brokers help sellers value their business; structure it for sale; market it (confidentially) for sale; coach buyers; show their business; qualify buyers for financial capability to buy the business and, conduct most of the negotiations.  Our job really begins when the buyer makes an offer.

When a buyer makes an offer, we prepare a Purchase Agreement for his review and signature.  The agreement is normally a seven (7) pages long and includes more than twenty-five (25) different clauses dealing with the transaction—all of which must be explained and accepted to not only the buyer, but to the seller.  The seller normally has a couple of days to accept/reject the offer.  And if you think this is an easy process, think again.  Through the counter-offer process, it may take days, if not weeks, prior to a resolution and concurrence with all of the clauses within a Purchase Agreement.  Now, put yourself in the “Twilight Zone,” and imagine going through this process with two foreign nationals who barely know how to speak English…ouchh!!  And who is in the middle?  You guessed it, yours truly -- the Business Broker!!

Most Purchase Agreements include two major clauses:  A Due Diligence clause giving the buyer the ability to review all records, financials, etc. for a period of ten to fifteen days, and a Lease Contingency.   Both of these clauses are potential deal breakers which the Business Broker must control.

During Due Diligence, the brokers deal with attorneys and CPAs who question and ask for everything—sometimes ridiculous things.  For example, I recently was asked by a lawyer for a list of 50 things to review on a due diligence for a business worth $50K.  I went back to him and politely asked him to back off.  Expectations can often be somewhat unrealistic.   What makes the job most difficult is that most businesses DO NOT keep good records and often cannot find the required documentation.  And, of course, we have to deal with the most feared animal of all:  THE LANDLORD!

The Lease Contingency basically says that if the buyer cannot get a lease all bets are off.  So the business broker deals with landlords for either an assignment of or a new lease for the buyer.  Simple, right??  Not really, the buyer must first be approved by the landlord and the landlord has no motivation to provide either an assignment or a new lease to the buyer—he already has someone (the seller) paying the rent. So, he shares all the risks and nothing to gain.  So, who negotiates most deals???  You guessed it – the Business Broker!!

And then, the Closing….but that merits a blog all by itself.  Do business brokers earn their commission?  You tell me!!

Should you want to know more about buying or selling a business, please contact Fernando Simo at 407-361-8886, email me at fsimo@tworld.com or please visit my webpage at www.bizbuyorsellflorida.com .