How Business Brokers Are Different Than Real Estate Brokers

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How Business Brokers Are Different Than Real Estate Brokers

Selling a business requires a different skillset and network than selling residential or commercial real estate. Understanding how business brokers are different than real estate brokers is critical when small business owners decide it’s time to make an exit.

A Business Is More Than a Building

While a business owner may own the physical site where business is conducted, selling a business involves much more than simply selling the space a building occupies. While a skilled and experienced real estate broker or agent can market the features of a building and location to prospective buyers, a business broker does much more.

Key Differences Between a Business Broker and a Real Estate Broker

Both types of brokers work to secure a buyer for the seller, but there are several key differences between a business broker and a real estate broker. These differences include:

Confidentiality

Real estate brokers or their affiliated agents work hard to market physical properties, announce the building for sale on various listing services, and post an asking price. Business brokers, on the other hand, must maintain strict confidentiality, revealing the identity of the seller or the asking price to no one until prospective buyers have been vetted and signed non-disclosure agreements. This protects the value of the business during negotiations.

Valuation

Real estate brokers have access to public databases that allow them to develop a list of comparable properties and the prices at which they were sold. Business brokers perform a far more complex analysis to arrive at a fair valuation of the business for sale. A thorough examination of current financial conditions, projected future profits, industry trends, and the value of intellectual property and equipment all factor into the calculation of a fair value and, therefore, a fair price for the business.

Intermediary vs. Agent

Business brokers work through networks of prospective buyers in similar industries, professional groups, or personal connections, and through specialized listings on websites that do not reveal the seller, the prices, or other details about the business. When they identify a prospective buyer, the business broker acts as an intermediary between buyer and seller, ultimately introducing them and helping the parties negotiate a deal that satisfies them both. Real estate brokers or agents represent only one side of the transaction, and work for the advantage of buyer or seller, but rarely both.

As we’ve seen, business brokers and real estate brokers are very different. Business owners should carefully evaluate business brokerages to select a firm that will understand their business. When choosing a business broker, entrepreneurs should look into the broker’s experience, the breadth of their network, and the type of sales the brokerage has concluded. Most importantly, they should confirm the broker’s commitment to confidentiality and how they expect to be compensated. Some brokers require upfront fees, while others get paid only after the business owner does too.