The field of business brokerage is a unique profession that many people falsely confuse as being synonymous with the real estate profession. Although there are many similarities between the two fields, many important differences do exist. This article explore some of the aspects that make the field of selling businesses different.
In the majority of areas, especially in Ontario, Canada, business brokers do not list businesses as multiple listings – they instead represent both parties to the transaction which is referred to as multiple representation. What this means is that a business broker will typically list a business for sale and also take it upon themselves to find a buyer. There are many different reasons for this but the main ones are that selling a business requires a specialized skill set and also that the transactions are usually much more involved than a standard real estate deal and an unbiased intermediary can be essential in putting a deal together.
Different skill set for business brokers
A person working as a business broker will need to have a broad skill set in order to be successful. They will usually need to have a fairly deep understanding of business valuation, financial statement analysis, taxation and employment issues, marketing and negotiation skills.
No comparable market data available
Usually, when a business is put on the market for sale, there is very little comparable market data available. This is usually because small businesses are typically privately held and do not disclose their confidential financial information, which is essential in determining the business valuation. Because of this, a business intermediary must rely on a business valuation methodologies to assist the client in determining a list price.
Longer time to sell a business
The period of time it takes to sell a business is usually much longer than a residential piece of real estate. It may take up to 9 months to sell a business and many deals fall apart before the final buyer is found. Most owners are surprised to learn how much longer the sales cycle is in the business brokerage profession.
Smaller pool of buyers
When it comes to find a buyer for a business, there are relatively fewer potential buyers than there are for a similarly priced house. Because of this, a small business must be aggressively marketed to a targeted group of people interested in buying such ventures.
When a business is advertised, the vast majority of people enquiring on the listing will probably never buy a business. Most people are unaware of what it takes to buy a business or simply do not have the financial ability or seriousness to complete the transaction. A big part of the business brokerage profession is qualifying buyers.
When a business is advertised for sale, in most cases it must be advertised confidentially. Most businesses do not want to let staff, customers or vendors know that they are selling so discretion is a major issue in when selling a company.