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

May 21, 2024

by a professional 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 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###-###-####

Reply by an intermediary
from Boston College in Mansfield, MA, USA

As an M&A advisor, primarily on the sell side, I aim to help reduce seller's remorse. If I can do that, the fees will take care of themself. I don't sell; I educate my client. I provide options for them every step of the way. I help identify buyers who will understand the value proposition. I help qualify buyers who may need to be a better fit financially or culturally post-close. I manage expectations through the offer process and work with the other professionals to facilitate a smooth transition from LOI to closing. I provide support, education, and translation during the due diligence process. Most sellers have never gone through this process before. They are often confused by basic requests, which can create frustration and anger that is not helpful or necessary. We can translate the requests, explain why they are required, and help both sides understand what is possible and realistic based on our client's systems and records to ensure the deal stays on track during diligence. Which is a massive benefit to both sides since it costs a lot of money.

I can understand why the buyers don't want an M&A advisor on the other side because they invariably will pay more for the transaction. But I can also say that if an M&A advisor is involved, there is an extremely high probability that transaction will close if an LOI is signed. Our rate is in the high 90%. I'd like to think that is a differentiator in the marketplace, but I believe many advisors get high close rates after LOIs are signed.

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