Buy A Business

In the majority of business sale transactions, the buyer is not represented and this is a huge mistake. Quite often we’ve seen seller’s who expect to sell their business for same price they bought it, but they become really disappointed when when the valuation produces a lower asking price. Part of that is due to the way they operated the business while they owned it, but it’s also due to the fact that they paid too much when they bought it. And why did they pay too much? Because they didn’t have broker representing them on their side of the negotiation table.

Whenever a business is listed for sale, the broker who listed the business represents the seller, not the buyer.

If you want to make sure that you’re not paying too much for a business that you want to buy, then you should hire us as a buyer’s broker. When you do, one of three things will happen: You’ll buy the business with more confidence that the asking price is fair; you’ll buy the business for much less than the asking price; or you won’t buy the business. In every case we are helping you save money. (Not buying the business is absolutely not the worse case scenario.)

We placed this question as a header on this page in order to explain the answer. A lot of buyers may not be savvy enough to ask this question, but the more familiar you are with the business selling process, the more you’d want to know the answer.

If the broker is paid a commission that is based on the sale price, then they would be motivated to make to sale price higher. Smart brokers and sellers will realize that the deal will only happen when the sale price matches what the market will bear (or there is no sale at all), but still, a price-based commission is an incentive to sell for a higher price. This is good for the seller and the seller’s broker, but it is not good for the buyer and it’s a major conflict of interest for a buyer’s broker.

A lot of times the seller’s broker is willing to co-broke the deal with the buyer’s broker because the buyer’s broker is bringing the buyer to the deal, but quite often the seller’s broker will not agree to this. When they don’t, the buyer’s broker still has to be paid.

Sometimes buyers start the process of buying a business but don’t follow through with the sale. So what happens the broker’s commission then? It’s too easy for a buyer to back out of a sale for a buyer’s broker to agree to no fees up front. Too often supposed “buyers" will get a broker to do a lot of free work in researching businesses and then never buy.

These scenarios are among the top reasons that buyers are often not represented. Another reason is that a lot of buyers are not savvy enough to seek representation. But when they are, how can an equitable arrangement be made so that the buyer is appropriately represented a buyer’s broker as the buyer’s fiduciary and not the seller’s? We will not publicize the exact agreement here, but it does contain the following four elements to ensure that the buyer has appropriate representation and that the broker is properly compensated.

Initial Retainer

This covers the initial research that we’ll do for you in finding a business that meets your criteria. We’ll perform our own valuations for the businesses you might buy to confirm that the asking price is fair, or to give you negotiating leverage.

Commission Based on the Price of Sale

The percentage will be lower than the seller’s broker and this won’t represent the bulk of fees paid, but it is still fair to have a portion of the fees dependent on the sale price because generally a higher-priced businesses will be a more sophisticated sale.

Commission Based on The Difference Between the Asking Price and the Sale Price

Most likely our services will give you negotiating leverage so that you can pay less than the asking price. Whenever we can help you pay less, this will represent the bulk of the fees and therefore motivate us to help you save more.

Would the buyer ever pay more than the asking price? That would be extremely rare. This will only happen when the business you are buying is in high demand and there are multiple buyers bidding for the business. If that happens then this portion of our fee will be $0.

We Request A Co-Broke Arrangement from the Seller’s Broker

Technically a seller broker’s commission is earned when they bring a willing and able buyer to the deal. If we do that as the buyer’s broker, then technically they should be willing to co-broke. However they may only agree to this when they don’t have other buyers bidding for the business. They will also only agree to it if the buyer has not contacted them directly. If the buyer contacts them directly then they will determine that they found the buyer, even if we still represent you in the sale.

When they do agree to co-broke and the sale is completed, and if it is greater, then we will waive the initial retainer and the commission based on the price of the sale mentioned above, or we will subtract the co-broke commission from those amounts. Which will save you as the buyer even more.

Don’t make the mistakes of other buyers. Get representation and negotiating leverage.

Contact us today to get started on finding a business that meets your criteria. Fill out the form on our contact page or call us at 480-744-5919.