Your first foray into the business for sale marketplace can be very challenging for a number of reasons – first and foremost that business transactions are inherently complex and as such you need good, quality help.
The professionals who help buyers and sellers navigate this marketplace are called business brokers. A business broker assists both buyers and sellers – buyers with finding the right business to buy and sellers with listing their business for sale. Although the business of buying and selling businesses has very little to do with the real estate sphere, for the most part (and depending on the state) business brokers are licensed as real estate brokers. A “real” business broker also has specific insurance and industry memberships that allow them to do their jobs effectively.
Why did we say “real” business brokers? Unfortunately our industry looks to those outside it as something other professionals can do on the side or as a part-time diversion. Nothing could be farther from the truth, and if you end up working with a “moonlighting” business broker instead of the real thing, then your chances of a successful transaction are slim to none. There are typically three types of “moonlighting” brokers – the real estate agent, the lawyer and the random professional. Let’s look first at the most common offender.
The Real Estate Agent
As we said before, we are licensed as real estate brokers with the state, but that is where the similarities between a business broker and a real estate broker (or agent) end. This is by far the most common of the “moonlighting” offenders. We literally get requests every day from real estate agents who are trying to help their residential (or even commercial) real estate clients buy or sell a business. They ask us to work together with them on the deal, as their clients already know and trust them and want them involved. If your real estate agent has tried to help you in the business market or has tried to convince you that it is in your best interest for them to be involved, then you should know that any good business broker will flat-out refuse to work with a real estate agent.
Why won’t we work with real estate agents? It’s really very simple. We would never try to sell one of our clients a house – it’s just not what we do. We aren’t in the residential real estate market, and we’re not in the commercial real estate market either. If that’s the service you need, then we won’t be the best help – so we would refer you to a real estate agent we know and trust. For the same reason we don’t work with real estate agents in business transactions. It isn’t what they do, they don’t have the proper insurance should something go wrong, and quite frankly they have no idea what they are doing.
Selling a business is massively different from selling a house in that a house gets a sign in the yard and all of the pertinent information listed all over the internet. Doing the same thing to a business would be the kiss of death for that business.
Business sales are done with the strictest of confidentiality, meaning any and all marketing materials for the business need to be created in such a way that anyone inquiring would have no idea which business they are reading about. Only after the appropriate non-disclosure documents have been signed can anyone find out the name or location of the business. Those who are given the opportunity to sign those non-disclosure agreements have also been vetted to ensure they are not someone the seller has asked be kept out of the loop, like current or former employees, the competition, etc.
Why all the secrecy? There is a very powerful misconception that a business for sale is a business on the brink of failure, and as such when confidentiality is breached employees jump ship, clients and vendors cancel contracts and the competition moves in for the kill.
The massive importance of confidentiality means that as business brokers there is just too much at stake for our clients who are trying to sell a business. We can’t take the chance and trust someone outside of our industry, like a real estate agent, with maintaining that confidentiality.
What about my real estate agent? Aren’t they getting left out in the cold? The standard industry practice is for your real estate agent to refer you to a business broker to handle your business transaction, and for that referral your agent will get a referral fee when the transaction closes. Most real estate agents don’t want to hand over their clients because they want a cut of the final transaction commission, but in reality they get a decent referral fee that is a percentage of that commission for doing nothing more than giving a client’s information to a business broker. They aren’t cut out of the deal at all, they are paid for doing nothing more than making a phone call.
What if my real estate agent promises to keep everything confidential? Again, you are going to have an impossibly hard time getting any transaction through to closing with a real estate agent involved. Many, if not all, business brokers have had bad experiences with real estate agents trying their hand at what we do with no real knowledge of the industry, and as such most brokers will refuse to work with any client that brings their real estate agent along for the ride.
What should I do instead? Ask to be referred to the proper professional for the job. A real estate agent with your best interest at heart will have no problem handing you over to a capable business broker, and finding a good business broker should be fairly easy for anyone in the real estate business.
Want to read about the other two types of “moonlighting” brokers? Click here.
Have you tried to buy or sell a business using a real estate agent and have a story to share? Do you have more questions about the differences between a real estate agent and a business broker? Please leave any comments or questions here!
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907