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What is a business broker, and how much do they charge?

If you've been reading up on the process of buying and selling businesses, you may have heard about 'business brokers'. These professionals help with the purchase or sale of small businesses. Think of them as middlemen who make sure the transaction goes as smoothly as possible.

Buying or selling a small business isn't straightforward. Valuation discrepancies, issues with contracts, and complexities surrounding financing mean the whole process can become a lengthy, challenging ordeal without support. A business broker is there to keep everything moving in the right direction and make the lives of the buyer and seller easier.

At AnyBusiness, we've matched thousands of Australian buyers with exciting business opportunities. Our extensive network and experience have shown us the benefits of having a qualified, reputable broker by your side during the transfer of a company.

So, to show you what to expect, we're going to explore the benefits of the business broker in more detail and provide some advice for choosing the best one for your needs. But first, let's take a closer look at the role of business brokers, and how they can help you market your business or find the right business worth your investment.

What does a business broker do?

The overarching goal of a business brokerage is to ensure that business sales go as intended. Reaching this goal means providing different services to the buyer and the seller. Let's look at these services in more detail.

Selling a business

For the seller, the business broker performs a handful of essential roles:

• Preparing your business for sale: A qualified business broker will help the seller prepare their business for sale. This might include helping to develop an exit plan, providing advice on all the documents required for sale, or updating the core business plan to make it as appealing as possible to a prospective buyer. Thus ensuring a smooth selling process.

• Business appraisal and valuation: The broker will use their experience and knowledge of the local market to determine the true value of the seller's business. Here the aim is to provide a valuation that is realistic and enticing for prospective business buyers. Businesses valued by a broker are generally perceived as having a more accurate and credible market price compared to self-evaluation.

• Marketing: This is an often overlooked element when looking to sell a business. A great business broker will help the seller market their property to buyers. They may create marketing materials, advertise on local listings, or leverage their contacts to speed up the selling process.

• Negotiations: Once a deal is underway, the broker will guide both seller and buyer through the process and perform due diligence while ensuring both parties have met their legal requirements.

Buying a business

It's a common misconception that business brokers are only there to serve the needs of the seller. But this isn't the case. Brokers also offer several vital services to sellers. Here are a few:

• Identifying suitable businesses: Most buyers have specific criteria for the type of business they'd like to buy. A broker will use this to find businesses that meet these specifications and preferences.

• Financial guidance: If necessary, the broker can provide advice and guidance to help the buyer find financing options to secure what they need to make the purchase.

• Negotiations: The broker will help the buyer negotiate a fair deal and ensure the transaction and buying process go smoothly.

• Transition: Once the business has changed hands, the broker may offer their support with the transition process to make sure the buyer is prepared to take over operations.

Related: The Business of Accounting: Should I Buy an Established Business or Start My Own?

How much does a business broker charge?

One of the questions we're often asked by business sellers is: how are business brokers paid? And, more importantly, what's the broker fee for selling a business?

The answers to these questions are a little complicated because different brokers have different pricing structures. Many opt for a commission-based structure. Some will also charge fixed fees for marketing and advertising. A few may ask for money upfront. Let's take a look at each.

Success fees (commissions)

In most cases, business brokers work on commission. This means they will take a percentage of the final selling price as long as the transaction is completed—if the deal falls through, they won't take the fee.

The exact fee the broker takes will depend on the size of the business and the broker's unique pricing structure. That said, most brokers will charge between 5% and 15% of the final selling price in addition to any fixed marketing fees.

Marketing fees

To keep things simple, many business brokers offer a fixed price for marketing and advertising. This could be either a single upfront payment or a rolling cost depending on the length of time you work with the broker.

Expert tip: Always ask exactly what your marketing fee entails so you can evaluate different quotes and pick the best value for money.

Retainers

Some business brokers opt for a retainer pricing structure. This means they'll request money upfront for their services. Prices can vary from $1,500-$5,000 depending on the broker and the services you need.

Benefits of using a business broker

Before we discuss how to find a business broker for your business, let's talk through the benefits for buyers and sellers.

Benefits for sellers

If you're thinking of selling a business, you might be wondering if a business broker is right for you. Here are a few reasons to consider:

• Exposure: Business brokers often have an extensive network of contacts that they can use to increase exposure and find potential buyers. These networks also make it easier to find qualified buyers.

• Expertise: No one knows your local market like a reputable business broker. These professionals can help you determine your business's worth, screen buyers, and handle negotiations, all while offering advice to make the process go smoothly.

• Efficiency: Above all, the business broker's experience and network will ensure the entire transaction goes smoothly. This reduces headaches, speeds up the sale of your business, and takes much of the stress out of the negotiation.

Benefits for buyers

On the buyer's side, the broker also offers several valuable advantages. These include:

• A wider range of opportunities: A business broker's extensive network means they can uncover lucrative opportunities that the buyer may not be able to find on local listings.

• Guidance and support: From business valuations to negotiations, a business broker can provide guidance at every stage to ensure a smooth buying process and help mitigate risk.

• Negotiation support: The broker can help secure a favourable deal by negotiating with the seller. Once the deal is completed, they can ensure the business transition goes smoothly while minimising disruption to operations.

Related: Why Do You Want to Own a Business in Australia?

How to find a business broker step-by-step

Our number one piece of advice is to make sure you choose your broker—not the other way around. Once you start marketing your business to sell, you'll likely get several emails and calls from business brokers who will promise you the world.

But in general, those who need to advertise their services with outbound strategies are not doing so because they have a steady stream of clients. It pays to find a professional yourself rather than letting one find you. Here's the step-by-step process we highly recommend to find the best fit.

1. Start with a directory.

Google is not the best way to find a leading business broker—a position at the top of the search results only means a broker has invested in ads and SEO, not that they provide the best service.

Instead, we suggest starting your search in an online business broker directory. Directories are excellent for preliminary research because they provide essential details out of the gate, such as:

• The business broker's areas of service.
• Their specialisations.
• Contact information.
• The broker's past sales and successes.
• Their familiarity with various business types.
• Their accreditations and certifications.
• A brief summary of their offer.

For instance, on the AnyBusiness Business Brokers Directory, you can search by state and then browse through dozens of brokers to find those that could be a good fit.

Of course, our directory won't tell you outright which brokers are the best ones, but once you've got a pool of potential candidates, you can begin to narrow your search in the next step. We recommend choosing 5-10 brokers at this stage before moving forward.

2. Research each candidate

With a list of possible brokers finalised, it's time to do your research to find the best option.

At this stage, you can either visit the broker's website, if they have one, or search the broker's name on Google to find more information. Here's what to look for:

• Check to make sure the broker is accredited with a reputable body like the Australian Institute of Business Brokers (AIBB), as this is a good indicator of expertise.

• Read reviews about the broker to see how the experience was for other business owners.

• Double-check that their specialisations line up with the requirements for selling your business.

• Assess their history to see if the broker has sold any businesses like yours in the past. If so, how well did it go?

This is just a preliminary screening, but it's a good way to narrow down your search. You should now have around 2-5 brokers that you can speak with to learn more information.

3. Talk to the remaining brokers

Next, you should communicate with the brokers directly. This is your opportunity to ask for details that you might not find on a website. Here are some crucial questions to ask.

1. Are you licensed? Can I have a copy of that licence?
2. Can I have a copy of your contract so that I can review it?
3. Can you break down what's included in your fees?
4. Do you have any experience with similar business types in my sector?
5. What's your typical marketing plan? (For business sellers)
6. What commission fee do you charge?
7. What's your business valuation method?
8. What are your policies for confidentiality?

Your broker will also pitch their ideas to you. They may have an estimated valuation for your business or a marketing strategy in mind. Either way, it's important not to get led astray from the essential questions above.

This is also an excellent time to assess the broker's communication and how confident you are in their ability to sell your business. Ultimately, you'll be putting a huge amount of responsibility on their shoulders. Don't underestimate the power of your gut feeling when deciding on the right fit.

4. Take your time

Once you've contacted a few brokers, take some time to decide on the best candidate. Don't let yourself feel pressured into making an immediate judgement call. Spend a few days and get a second opinion, if necessary, before you sign the contract.

Related: A Guide to Buying an Online Business

How do I sell my business without a broker?

Decided you'd rather go it alone? Selling without a broker is more affordable but also more challenging. If you're set on this approach, here's some advice to consider:

• Organise everything before you sell: Make sure your financial records are spotless. Collect relevant business sales documents. Ensure your licensing and permits are up-to-date. The more you do now, the more appealing your business looks and the smoother you can make the selling process.

• Don't underestimate marketing: It isn't always easy to find a buyer for your business, so effective marketing is a must to increase your chances. Use business-for-sale sites, advertise in publications, and attend industry events to network with potential business buyers.

• Protect your confidentiality: Always make sure a buyer is serious before you offer up any confidential information. Check financial capability and ask in-depth why they want the business. You could even consider making them sign a confidentiality agreement before proceeding too far. Doing so will protect you from giving away too much information too quickly.

• Negotiate and be realistic: Be ready to negotiate, and don't be afraid to exit a deal if you don't think it's worth it. Equally, check local business listings and keep an open mind during the negotiation stage. With the right due diligence, you can be sure to get your business sold for its true value.

Frequently asked questions

What is the standard commission rate for business broking?

It is usually around 5-15%, though this varies depending on the broker's skill and experience and the size of the business sold.

Does a business broker need a licence?

Yes, business brokers in Australia do need a licence. The licence required varies by state, but all should have some form of accreditation. In NSW, for instance, brokers need to possess the NSW Real Estate Agent License Class 2. You can see the full list of state licence courses available on the AIBB website.

Do I need a broker to buy or sell a business?

There is no law or legislation stating that you need to use a broker to buy or sell a business. However, it can be an incredibly complex process, so if you aren't experienced, it's a good idea to get support. Business brokers can provide quality advice and tips for buying and selling to ensure the sale goes smoothly.

Summing up

If you're looking to buy or sell a business, you may be thinking, " This seems like a lot of detail and a lot of due diligence. Is this really worth it?"

But it's important to remember that this could be one of the most important transactions of your life. It's worth putting in the effort now. Start with a directory. Narrow down your scope through research. Ask the right questions. Do all of those things, and you'll be in an excellent position to find a broker who makes your entry or exit strategy stress-free.

Need more support to buy or sell your business? At AnyBusiness, you can browse through hundreds of experienced brokers in our massive broker directory. Or, if you'd prefer to sell your business privately, our marketplace will give you the network to find potential buyers faster.

Looking to buy an existing business in Australia? Our marketplace features restaurants, hotels, fish and chip shops, mechanics, hair salons, building and construction businesses, eCommerce stores, and more. Browse our business categories here, or get in touch to learn more about how we work.