Role of a Business Broker
One of the questions that we are asked in our work as business intermediaries in Toronto, Canada is “why should I use a business broker to sell my business?” The answer to this is simple: a business broker will be able to sell your business faster, with less disruptions to operations, and for a better price than would be possible if it were to be sold by the owner. This is because brokers are in the business of selling businesses, meaning that they are experts at facilitating the transaction between the buyer and seller. To understand how a broker can sell a business faster, and for a better price, it is first important to understand what exactly a broker does.
In Toronto and Ontario, as well as in most other Canadian provinces, a business broker will work on behalf of the owner of a business to assist them in the sale process. The first stage of this process is to establish a fair market value of the business. A broker has a thorough knowledge of industry tested business valuation methods (for a discussion of the various valuation aspects visit our article on Valuation Methodologies), which substantiates the business asking price.
The second step in selling a business is to confidentially market the opportunity, and attract a pool of qualified buyers. The most involved part of this process is creating an investment or business memorandum which is a detailed document describing every aspect of the business being sold, such as its financial performance, employees, industry overview, details about the business tangible and intangible assets, etc. This document is the first glimpse that a prospective buyer will have into a business so it is imperative that it is professionally and expertly developed.
A business broker has a large network of buyers at hand that are eager to learn about new investment opportunities. Simultaneously each new listing is being exposed and marketed to new potential buyers. The role of a business broker is to pre-screen and pre-qualify these to assure that only the motivated and financially capable leads are brought to the discussion table with the business owner. Business owners usually do not have the necessary tools to pre-qualify leads and thus sometimes lengthy discussions are conducted with parties that are not qualified. A business broker will ensure that all buyers put in front of a business owner have the necessary qualifications to run the business, possess the financial ability to make the purchase and have the motivation to complete the transaction.
The next step that a broker assists with in the sale of a business is to help with the negotiations. Having a third party mediating the negotiation process is essential; dealing with each other at arm’s length assures that buyer and seller can objectively analyze issues and see each other’s sides. By providing referrals to other business professionals (such as lawyers, tax planners, accountants, etc.) the business broker is able to assist buyers and sellers analyze potential deal holistically and objectively.
The last step of the business broker involvement is the assistance with the due diligence and exchange of relevant information after the conditional offer has been signed by both parties. Efficient information exchange is essential in assuring that deal momentum is maintained and parties are given the necessary next steps in relevant and coherent order.