In this article, we discuss the pros and cons of being a business broker. We’ll compare business brokers to M&A advisors, another intermediary that facilitates sales and acquisitions of businesses. We also compare business brokers to more widely found and understood residential real estate brokers. We’ll look at skills and backgrounds of business brokers, training and education, lifestyle and earning potential.
What do Business Brokers Do?
While REALTOR® help people buy and sell real estate, business brokers help people buy and sell businesses. There are some similarities and differences and there is also some overlap. Business brokers often deal with commercial leases and sales, and many business brokers are licensed to practice real estate.
What is the Difference Between a Business Broker, M&A Advisor, and Investment Banker?
A business broker is one type of intermediary that helps with the selling and buying of businesses. Other types of intermediaries work on larger deals between larger businesses. M&A (Mergers & Acquisitions) Advisors focus on lower middle market deals or small to medium sized businesses. Investment Bankers work on medium to large businesses including public companies. Because these types of intermediaries work on different size businesses, some of their skills, activities, and processes can differ significantly. However, there is overlap in what they do and there are no strict size boundaries that distinguish these intermediaries. These two groups may intersect in the $5-25M revenue range. Below that is the domain of main street business brokers. Above that is the domain of M&A Advisors. Most M&A firms set their low end cut-off at $1M in EBITDA.
Even titles can be interchangeable. Some high-end business brokers call themselves M&A advisors if they operate both in Main Street and the Lower Middle Market. Some people see M&A Advisor and Boutique Investment Bankers as synonymous labels. Here is a rough idea of the segments where intermediaries operate. Note: you will find variance in how these categories are defined by different sources.
- Main Street- <$5 million of revenues: Business Brokers
- Lower Middle Market – $5 – $50 million of revenue: M&A Advisors
- Middle Market – $50 – $500 million of revenue: M&A Advisors and Boutique Investment Bankers
- Upper Middle Market – $500 million – $1 billion of revenue: Investment Bankers
- Greater than $1 billion of revenue – Bulge Bracket Investment Bankers
There are also some differences in the way each executes their job.
- Fees – see the article How Much Money Can Business Brokers Make?
- Listing Process – While business brokers primarily list online, M&A advisors have an active database of financial buyers and private equity groups and are more likely to have a process for finding and contacting strategic buyers (competitors). M&A Advisors may also run an auction-style process that has its risks, pros and cons.
- Representation – Most business brokers represent both the seller and the buyer. M&A Advisors who list business for sale may not represent the Buyers, who are likely to be professional buyers capable of representing themselves.
- Buyers – Some M&A firms help larger active buyers find and acquire companies on a retainer basis while most business brokers lack the resources for such a dedicated service.
- Contracts – Business broker transactions usually involve an NDA, proof of funds, a purchase agreement and a good faith deposit. M&A deals may have NDAs, purchase agreements, and closing documents. Prior to a purchase agreement, these larger transactions often start with an Indication of Interest (IOI) followed by a Letter of Intent (LOI).
- Due Diligence – the Diligence period can be three months in an M&A transaction where the buyers analysts perform due diligence for a month, followed by a CPA or team of accountants in the second month, and an M&A attorney or legal team in the final month. While a main street deal could take months for due diligence, it is more likely to take a few weeks or less and may or may not involve the Buyer’s CPA or attorney.
- Legal – The parties to a main street deal may each have an attorney or they may not depending on the sophistication of the business and the purchase agreement terms. There are business sale transaction attorneys for every level. M&A attorneys and legal teams work on larger deals. They could cost tens of thousands to over $50,000 for each client. When matched up with an attorney or legal team at the same level, it is not uncommon for them to throw walls of red ink back at each other until a compromise can be reached. Buyers and Sellers at this level are happy to pay for this service to mitigate significant risk. However, when this level of legal firepower migrates downward into smaller transactions, the likelihood of a legal mismatch between parties is high, increasing the chances of a failed deal.
How Does Being a Business Broker Compare to Being a REALTORⓇ?
Some of the similarities include dealing with contracts, working in a 100% commission environment, working with lenders and other partners, dealing with numbers, handling marketing, budgeting expenses, dealing with commercial real estate leases or sales, dealing with people and working for yourself. Some of the key differences are the level of competition, commission amounts. closing ratios, frequency of co-brokering, and dealing with financial statements. Here is a summary table that compares the two roles.
Can Real Estate Agents Sell Businesses?
Since certain states require business brokers to be licensed, and that license happens to be a real estate license, then any actively licensed real estate agent can also sell businesses. In states that do not require a license to sell businesses, anyone can theoretically sell a business on behalf of someone else.
However, there is a difference between being allowed and being capable. Most real estate agents are members of the National Association of REALTORSⓇ and must comply by its Code of Ethics. Article 11 of that Code says REALTORSⓇ should not engage in areas outside their expertise unless they engage the help of someone who has the expertise. Real estate brokerages typically do not train agents on business brokering so a real estate agent would likely refer business to business brokers or make a commitment to learn business brokering.
What Licenses are Required to Become a Business Broker?
Most states do not require a license to practice business brokering unless real estate is involved in the sale of a business. A real estate license is always required when brokering a real estate sale or lease, even if it’s part of brokering a business. Business brokers who are not required to be licensed by their state may partner with commercial real estate professionals when real estate is involved.
In this article, you’ll find a table showing the states that require a license to broker businesses. In all of those states, the required license is a real estate license. While there are business broker certifications, education and training, there is no such thing as a license specific to business brokering.
What Kind of Training do Business Brokers Need?
Real Estate
Continuing education is required to maintain a real estate license, which is the only license any business broker needs to operate as a business broker. Some states do not even have this licensing requirement. But even in those states, a real estate license will enable a business broker to handle sales of businesses that include real estate leases or sales without the assistance of a commercial real estate professional.
Trade Organizations
Besides the required education for licensing purposes, there are education requirements for advanced broker designations such as CBI (Certified business Intermediary), M&AMI (Mergers & Acquisitions Master Intermediary), CM&AA (Certified Mergers & Acquisitions Advisor) just to name a few. CBIs are business brokers with advanced education and certain levels of experience and accomplishments. M&AMI and CM&AA are designations for M&A professionals who work on larger deals. There are many other M&A designations besides these two. The CBI designation is provided by the IBBA (International Business Brokers Association) and the M&AMI designation is provided by M&A Source. These two organizations are related and provide education sources online and in-person at annual conferences.
Franchise Education
National and regional business broker franchises provide education for their broker/owners and the agents that work for these owners. As a new agent, a big advantage of joining a franchise owner is the education and support available from the franchisor, or franchise headquarters. Some of the larger franchises are:
- First Choice Business Brokers
- Murphy Business Sales
- Sunbelt Business Brokers
- Transworld Business Advisors
- VR Business Brokers
Other Training Sources
There are many independent business brokerages throughout the country that are not franchise operations. They also provide agents with education and support, but the overwhelming majority of them are very small. Business Brokerage Press is an independent resource for business brokers. It is run by Adam West, the son of one of the founders of the IBBA. Business Brokerage Press also provides a CRM software platform for business brokers.
Various seasoned brokers have put out education courses. Most of them have not gained much traction because these broker/entrepreneurs focused on brokering versus marketing their courses. A couple of them provide free video presentations on Business Brokerage Press. Industry veteran Jim Parker put out a series of YouTube videos around the time of COVID that covered topics related to the PPP loan as well as other general business broker topics.
What is the Typical Background of a Business Broker?
Here are some common places where business brokers come from. See How Do You Get Started as a Business Broker?
- Accounting
- Business Buyer or Seller
- Consulting
- Corporate Management
- Entrepreneurship
- Finance
- Former or Current Business or Franchise Owner
- Insurance
- Law
- Residential or Commercial Real Estate
- Sales
- Wealth Advisory
What Are the Skills and Characteristics of a Good Business Broker?
Business brokers are people with a unique and rare combination of backgrounds. Few people have a mix of functional experience that includes sales, marketing, finance and psychology. Here is a list of skills and characteristics useful to a business broker.
- Startup Capital / Savings
- Entrepreneurship
- Process Development
- Marketing Strategy
- Digital Marketing
- 100% Commission Sales
- Relationship Sales
- Customer Service
- Writing Skills
- Comfortable with Financial Statements
- Small Business Acumen
- Comfortable with Contracts
- Comfortable with Uncertainty
- Comfortable with Setbacks
- Excel at Expectation Setting
- Understand Personality Types
- Creative Deal Structuring
What Are the Best Things About Being a Business Broker?
Because there are so many skills and qualities required of this career, there are very few business brokers relative to real estate and other professionals. This presents a great opportunity for those who combine many of the required skills to become a business broker. Here are some of the exciting benefits of being a business broker.
- Freedom of Schedule
- Work Remotely
- Control Your Destiny
- Build a Referral Business
- Help Small Business Owners
- Experience Variety in Your Work
- Apply Creativity to Your Work
- Become a Small Business Expert
- Become a Better Entrepreneur
- Buy Your Own Business
- Sell Your Own Business
What Are the Worst Things About Being a Business Broker?
Business brokering is challenging. Some of the keys to being a successful business broker are communication, anticipation, and expectation setting. Psychology is also required in the sense of high-level salesmanship and understanding people. Selling a business is often the largest financial and emotional transaction in a person’s life. On the other side of the equation, buying a business is a scary proposition for most newbies who cannot overcome the potential risks. Here are some of the most challenging aspects of being a business broker.
- Slow Ramp to Revenue
- Expenses
- Financial and Emotional Roller Coaster
- Poor Closing Ratio
- Business Owner’s Unqualified Advisors
- Deal Killers
- Uncertain Buyers
- Arrogant Financial Buyers and Private Equity Groups
- Unrealistic Sellers
- Chasing Sellers for Documentation
- Commission Haggling After a Signed Agreement
What are the Pros and Cons of Being a Business Broker?
Being a business owner is potentially one of the most rewarding and challenging professions you can choose. You could be taken to the highest of highs and the lowest of lows. Interactions can be extremely rewarding when client goals are achieved with your help and clients become forever grateful. On the other hand, client relationships can be devastated by transactions gone awry which happens all too often.
Financially, there is the potential for one single payday to be greater than a year or more of salary in a previous profession. But with high rewards, come high risks. Many times, life-changing commissions can vaporize just days or even hours before closing. Business brokering is not for the faint of heart.
For more information on earning potential, read What Do Business Brokers Earn?