Historical facts about Business broker
Business brokers, also known as business transfer agents or intermediaries, play a crucial role in assisting buyers and sellers of privately held businesses during the buying and selling process. These professionals typically estimate a business's value, advertise it for sale (sometimes without disclosing its identity), handle initial interviews with potential buyers, facilitate due diligence investigations, and generally assist with the entire sale process.
Historically, the use of business brokers is not mandatory for selling or transferring a business in most parts of the world. In the United States, employing a broker is also not required to obtain a small business loan or an SBA loan from lenders. However, once a broker is engaged in the transaction process, a special escrow attorney—similar to those used in real estate closings—ensures all parties involved receive payment. In contrast, this service is provided by commercial solicitors specializing in transactions in the UK.
Business brokers predominantly serve what's known as the lower market or Main Street market. Here, most transactions involve outright purchases of businesses. Meanwhile, larger companies typically engage investment banks and corporate finance firms due to their complex needs like mergers and acquisitions (M&A), recapitalizations, management buyouts, and public offerings—all requiring specialized skills and often regulatory licensing.
Agency relationships between brokers and clients can vary. Traditionally in the U.S., these are full-service brokerage relationships under signed agreements with fiduciary obligations. Some states have specific statutes governing these relationships and may require business broker licensing.
In some U.S. states, brokers act as transaction brokers who facilitate deals while maintaining neutrality between buyer and seller. Transaction brokers often get paid by both parties involved.
Dual agency occurs when one brokerage represents both buyer and seller under separate agreements; however, this practice varies widely across U.S. states due to differing interpretations of dual agency laws.
Broker compensation can be structured differently: hourly rates, retainers, or success fees (commissions upon closing). In the U.S., standard fees for sales under $10 million typically include about 10% commission up to a certain price point with minimum fee requirements; whereas UK practices might involve no retainer but success fees range from 5% to 10%.
Licensing requirements for business brokers vary globally—in some U.S. states it's required only if commissioned; Canadian provinces mostly require real estate licenses except Alberta; Australia mirrors real estate agent licensing; whereas no formal system exists currently within the UK.
In terms of regulation concerning M&A transactions involving securities—which may necessitate securities licenses—a major law change occurred late 2022 exempting smaller transactions from such requirements under SEC authority (U.S.).
Business broker associations provide educational resources along with regulatory guidance through national bodies like IBBA (U.S.), Institute for Transaction Advisers & Business Brokers (UK), Australian Institute of Business Brokers among others.
