What Does A Business Broker Do?

Feb 28, 2023

What Does A Business Broker Do?

The Reverend Jesse Jackson famously said, “Never look down on someone unless you’re helping them up”.  Many career paths are what I call “noble professions” where individuals provide services to the community in which their contributions to society exceed the personal benefit they receive in return.  In this class of occupations, among others, I would include teachers, doctors, nurses, social workers, and emergency services personnel.  Several tiers down the scale on the contribution to society is the business broker, a profession IBA have practiced as a firm in the Pacific Northwest with knowledge, care, and skill for approximately fifty years.

Business brokers fill an important role in society.  They are the professionals that have the ability to facilitate the transition of a business asset through sale into money that can be used for retirement, change, legacy, and philanthropy.  They are also the individuals that can open the door to independence, achievement, financial stability, and personal fulfillment for new immigrants to the nation and people unhappy working for others in the corporate world.

Most people do not know in detail what a mergers & acquisitions intermediary does on a regular basis.  The following is a list of five of the main activities that generally fill the days of the best business brokers.

  1. Educate – The purchase & sale of a business is unfamiliar territory to most people. In many cases, a person is selling their life work in a type of transaction they will only complete once in their lifetime.  On the buyer side of the transaction, a life decision is being made that will impact their family, career, and income.  Parties enter the process with an abundance of questions.  It is the job of a business broker to address them comprehensively, so decisions can be made from a foundation of knowledge, utilizing surrogate experience, and professional execution skill. The better the teacher employed the less the turbulence in the transaction and opportunity for success.
  2. Problem Solve – Every business sale is a unique piece of artwork made of different materials. Some are created on canvas, others out of glass, some fabricated out of metal, while others are woven tapestries.   Each transaction has a unique buyer, seller, and business.   Each of these components bring different elements to the deal ranging from financial capability to management acumen to the business model to the staff, customers, and vendors of the company.  Many variables in algebraic equations need to be solved for to successfully complete a transaction.  A few common ones are as follows:
    1. What is the value of the business?
    2. How will trailing liabilities be addressed?
    3. What involvement will the seller have post transaction?
    4. What limitations will be placed on the seller post transaction?
    5. How will the acquisition capital be sourced?
    6. How will the transaction be allocated for tax purposes?
    7. How will the transaction be shared with customers, employees, and vendors?

    It is critical to have a seasoned, knowledgeable guide of superior ability to help the parties navigate through the treacherous waters necessary to get a deal safely into harbor without breaking up on the rocks and reefs, often submerged, littering the passageway.

  1. Resource Acquisition – Any significant journey requires capital and intellectual resources.  The purchase or sale of a business is no different.  Some parties come to deals with resources in place, others do not know what they need or will be required.  A business broker is a great deal resource for attorneys, accountants, seeking financing, appraisers, inspectors, and specialized professionals.  Do you know where to go to get an environmental assessment and potentially mitigate the findings that result?  How about how to use retirement account assets to satisfy capital injection requirements?  Or who can do a QOE (Quality of Earnings Report) in a timely manner at a fair price?  The size and spectrum of a business broker’s Rolodex should be assessed when selecting representation.  It is a deal resource that should not be undervalued.
  2. Learn – Business sales are sophisticated, nuanced transactions that occur in a marketplace that is constantly changing. Top tier business brokers allocate a significant portion of their time to education in preparation for serving their customers.  M&A intermediaries are generally not attorneys, but they should know about relevant legal precedents and what is standard & reasonable in deal documentation.  Business brokers are traditionally not CPA’s, but they need to be aware of tax law changes that will impact their clients.  Dealmaking professionals selling businesses commonly have not been bankers, but they need to know present underwriting requirements, interest rates, capital injection requirements, and debt service coverage ratios being approved.  Knowledge does not need to be held individually but can be held tribally at a firm.  Similar to a CPA or law firm that has partners with areas of knowledge that can be tapped into by associates in need, larger business brokerage firms have resources available to their brokers and clients not found at smaller entities. Personally, I would never engage with a business brokerage firm with a staff of less than 5.  I have heard too many stories of deals failing at those firms based on lack of knowledge, experience, skill, and bandwidth when a broker has too many projects, health or personal issues, or is on vacation.
  3. Network – How does a business broker gain clients and resources, they need to network in the community, with trade organizations, and professionals who also serve the entrepreneurial community. Salespeople should be hunters and gathers.  Very little productive occurs in terms of connecting with people on a human level sitting back in a cave or office.  People do business with individuals they know, like, and trust.  One question to ask a business broker being interviewed for a job is who have you met with this week?  That simple question will let you know whether they are active in the marketplace or sitting around playing solitaire on their computer hoping the phone will ring.

Benjamin Franklin famously said, “If you want something done, ask a busy person”.  If you want to sell a business in Washington, Oregon, Alaska, or Idaho, we are busy at IBA closing deals on almost a weekly basis, but have the bandwidth on our double digit team of knowledgeable, experienced, highly skilled business brokers for more sell side projects.  We welcome the opportunity to talk and meet with entrepreneurs. All conversations with IBA are held in strict confidence.  IBA charges no retainers or administrative fees, desiring payment only upon project completion.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, legal, and accounting communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.