What is a Business Broker?
A business broker is an agent that usually acts on behalf of the vendor (the seller) and facilitates the exchange of businesses and their assets between two or more parties.
There are many disciplines that a good business broker must be proficient in to successfully sell a business at the maximum price the market will bear, in good time and the least hassle for the vendor so they can continue to run and serve their business to the best of their ability right up until settlement.
This post outlines many questions people have about business brokers, what they do, where to find them, how much they charge and much more. So get comfortable and expert to learn a lot. If you know what you want to learn more about right now, click the links below to take you straight to the blog!
- What does a business broker do?
- Does my broker need a Business Broker Licence?
- What is an Online Business Broker
What Does A Business Broker Do?
A business broker has a broad skill set. They determine the market value of a business and organise and prepare the business for sale. They manage the sale process, talk with buyers and their advisors and negotiate offers, allowing the vendor to continue running the business or attending to other matters. They can also assist with contract negotiations. Read this article What Does a Business Broker do to learn more.
Does my broker need a Business Broker Licence?
A business broker does require a licence to act as a selling agent and sell a business on someone else’s behalf, but it is not necessarily a business broker licence. The minimum requirement for someone to be a business broker is obtaining a real estate agent licence.
However, this is slowly but surely being phased out. The Australian Institute of Business Brokers is the peak representing body of business brokers in Australia. It is working with government agencies, licensing bodies, and other relevant organisations to introduce stricter standards on real estate agents attempting to list and sell a business without knowing the company or industry.
Online Business Broker
Some people and, concerningly, accountants are turning to software platforms to determine business value. So far, I’m yet to see one that accurately and consistently produces the business’s current market value. Don’t be fooled by the lower price that an automated platform can offer. It is a complete waste of time and money. In this article I compare online platforms with traditional broker firms.
Business Broker Fees
broker fees for selling a business
A vendor will usually need to pay three main types of service fees to get their business sold at a professional service level. These are
- An appraisal or business sale report. This service provides you with a detailed report on what your business will achieve on the market and a breakdown of all the value drivers of your business.
- Marketing and preparation and contract management. Usually payable when listing, and,
- Commission or success fee. Almost always payable only upon a successful settlement.
To obtain a business sale report can cost between $250 – $750. This is probably one of the market’s best value fees for service investments. If you wanted to sell your business, you used to have to go to market, spending money on marketing and preparation just to get some market feedback on what your business is worth. Which is a lot of time and money spent just to get the news your business is not worth as much as you thought, and you’re better to build the company for one more year before selling.
Of course, this service is not designed to make a broker wealthy, it’s designed to demonstrate expertise and knowledge in your industry, so when you are ready to list, you then put your confidence in that broker.
Modern advertising and marketing costs have increased significantly from the days of the newspaper ad. Complex algorithms, listing platforms with thousands of listings on the internet where millions of people are searching and clicking on billions of bits of data daily means you need to list at a professional level. That’s the only way to get multiple buyers looking, reviewing and placing offers on your business. And the only way you’ll achieve the highest price the market will put forward.
How Much Does A Business Broker Charge?
Business broker commission rates
Depending on the industry and the value of the business, a business broker’s commission fee can be between 3% – 10%. If the company’s value is less than $1 million, then the commission is about 8% in most industries. From $1 – $2 million, it can be anywhere between 6 and 7.9%. The higher the value, the lower the percentage. So for a business selling for $5 million, the commission would be about 3% – 4% of the final price.
Unfortunately, for smaller businesses, there comes the point for a broker where there needs to be a minimum. Most brokers set a minimum of between $17,500 – $30,000 as the same amount of work is required if the business is worth $100,000 or $500,000. It would be equivalent to a solicitor charging less per hour if the advice was for a smaller value deal, but the same amount of work is required. I can ashore you, and I’ve never met a solicitor who would do that!
The Best Business Broker Gold Coast
There are numerous different business broker companies. But to be very blunt, some are absolute shonks. However, on the other end of the scale, some brokers are incredibly professional and astute and approach their trade with a multi-disciplinary approach. They deeply understand the value of marketing and advertising; they try to get a listing found without understanding Google searchability scores and algorithms. All this means is if your listing or (material like this) can’t be found, you won’t have any buyers. But other skill sets are required; financial literacy, operational knowledge, legislative, tax and commercial law, industry knowledge and market knowledge. No good listing a business if you don’t know what buyers are actually paying for it or what the banks will lend to it.
In this article, I discuss 5 of the Gold Coast’s well-known business brokerage firms.
I don’t like highlighting firms that don’t meet market expectations, but this one seems to be on the shonky side. Of course, every business can expect a faulty product or service, a poor result or an over promise at some stage but when history keeps repeating itself, it is pretty concerning.
How to find a business broker
Finding a business broker is easy. Type in your favourite search engine, and you’ll get a list of options. Just because a company pays Google to list their business at the top of the page doesn’t mean they are right for you.
But there are other options. Established business brokers and firms will have a reputation that others are comfortable referring to. There are accountants, bookkeepers, finance brokers and solicitors who have probably heard the best and worst feedback from some business owners’ experiences about the broker they used. That is a good start if someone in your professional network can recommend a business broker.
Brokers don’t need qualifications, but many come across from another background. Some may run their own business like me. When talking with a business broker, try to gauge strengths and weaknesses. Some might have 20 years of experience in one field others may not.
If you want to know more about how to find a business broker then read this blog.
This article goes deeper into what to look for and where. However, I can’t let you read any further without telling you to look no further!
If you would like to talk about your business or plans, then Click Here to book a time, and I’ll be happy to speak with you about what you need to know to make your next decision.
Business Broker Association
The Australian Institute of Business Brokers, or the A.I.B.B for short, is the peak industry body or association for business brokers across Australia. The A.I.B.B. was established in 1989 to standardise the quality of brokers in Australia and provide support to its members. Brokers members of the A.I.B.B. typically undergo continuous professional development (CPD) courses throughout the year to ensure they offer their clients and business owners the highest degree of professional service. The AIBB also keeps its members up to date with legislation changes both federally and at a state level which is essential when it comes to navigating the contract and settlement stage.
AIBB Membership provides access to a range of resources and services. I’ve listed the main items below.
- Education and training events
- Online forums and discussion boards (with an option to join special interest groups)
- Business Broker Licence requirements
- Bizstats
- Certified Practicing Business Brokers (CPBB) Accreditation
- Registered Business Brokers (RBV) Accreditation
- Professional standards, skills and education
- Keeping members informed: newsletters, blogs and webinars
The most important to note out of this list is Bizstats. Bizstats is the only broadly accessed database containing business sales details across the country. Unlike Price Finder in real estate, there is no business equivalent where you look up comparable sales data. If you would like to learn more about the A.I.B.B., click here.
Should I sign a Business Broker Contract?
If you want to sell your business, then the answer is yes. You should sign a business broker contract. And to be clear, you’re not even singing a contract person. You’re singing an agreement. I often have people tell me to keep their business in mind if I speak with a buyer who might be interested. Unfortunately, I’ll never discuss someone’s business without the authority to do so. And that authority needs to come in a signed agreement or authority form. There are two reasons why a broker should not discuss a business with a potential buyer without the signed document;
- Because it’s highly illegal, it’s like your doctor talking to other patients about your condition, and
- If a seller isn’t prepared to commit to an agreement, they aren’t committed to selling. I try to do many things when selling a business, but I also try to avoid wasting anyone’s time.
If you want to read through the agreement, I’ve done the hard work for you. Below I’ve listed direct links to each application form depending on your state.
- Queensland
- New South Wales
- Victoria
- South Australia
- Western Australia
- Tasmania
- Northern Territory
- Australian Capital Territory
How to sell my business without a broker
You have two options. One option is ok, and one option is not. The only reason I can think of why someone would want to sell their business themselves is that they are either a professional business broker or the company is worth less than $50,000, and they have some spare time.
If you’re reading this, you’re probably not a professional business broker, so that means your business is worth up to $50,000. In which case, I have the perfect solution for you. It’s called Upside by Benchmark. You get everything that an extensive listing gets without the commission fee. The reason is that once a buyer comes through Benchmark’s advertising and has filled out the confidentiality agreement, you will get notified so you can contact the buyer directly. Of course, the broker is always there to help with phone support and guide you through the process, but you do the talking, inspection and selling now to the buyer.
This approach significantly saves the vendor and allows them to give their business the professional sales campaign it deserves. If you think this might be a good option for you, then book a call with me here, and we can chat further about how Upside can work for you.
The Most Important Business Broker Services
Business brokers can provide several fee-paying services, and each service has important sub-services. For example, when conducting a business valuation or appraisal, a business broker must be astute and knowledgeable in interpreting financial statements, understanding working cash flow, and expected payback returns on capital. Expected market returns can fluctuate relatively quickly, as we’ve seen through the Covid – 19 disruptions. As a result, buyers and investors started to demand a fast return on business investment but a more extended commercial real estate investment return.
Other services include listing the business for sale, which requires marketing and people skills. In addition, the agent moves from a financial analysis role into a sales and project management role.
Another lesser used service in Australia is buyer agents. These brokers actively hunt out a business for their clients to purchase.
How to sell a small business without a broker
Selling a small business without using a business broker is possible, and at some point, it becomes a question of whether it is worth using a broker. Selling $50,000 or $500,000 is usually the same work, so good brokers don’t reduce their commission and fees by 50% just because the business is less expensive. Most brokers will have a minimum of between $15,000 – $30,000. For a company worth $50,000, over half of your sale is gone in commission. In this case, it might be better to sell the business yourself, even though you may only get $30,000 for it, not $50,000.
If you decide to sell the business yourself, you have a couple of options. There’s Gumtree and Facebook marketplace, or an option called Upside. This is the best option I’ve seen on the market to sell small businesses without a broker. It’s a service provided by Benchmark Business Sales. You get a professionally prepared information memorandum and ad copy written. The company is listed on all the leading listing platforms, so it looks just as professional as all the other listings. All buying enquiries complete a confidentiality agreement form, but the buyers speak with the sellers directly. This saves you tens of thousands of dollars. At the time of writing, the Upside option was only a one-off fee of $4400. You can learn more about Upside here.
Next Steps
If you would like some advice about selling your business, you can contact me:
- Call on 0416638154
- Email at mick@mickgodwin.com.au
- Booking a Strategy Call in my calendar
