How to Become a Business Broker

Deciding to Become a Business Broker

Understand what a business broker does. A business broker is essentially a deal maker between the buyers and sellers of businesses. They generally represent the seller of a business, but can also represent buyers, both parties, or act as neutral intermediaries. Their goal is to make the selling process as easy and rewarding as possible for their client. Specifically, they handle every aspect of the sale, including: Finding business owners trying to sell. Estimating the fair market value of the business. Creating a sale listing and advertise the sale. Identifying and investigate potential buyers. Negotiating a purchase deal. Making sure that the buyer acquires proper funding. Other duties are required to close a sale.

Know what the job will require. Business brokers are required to have the skills of accountants, financial analysts, salesmen, and intermediaries, in addition to a specific business brokerage skill set. They have to identify and, in many cases, cold call business owners that they think might be wanting to sell. As a new business broker, you will need to build up relationships and handle many rejections before even making your first deal. There will be long hours and many repetitive tasks to handle before you make any progress. However, for those with the entrepreneurial spirit, being a business broker can be a rewarding career.

Look into the job market and compensation. Business broker compensation varies between brokers and depends on the type of deals that they make. Commissions earned on sales are usually 8 to 12 percent of the sale price, but may be more or less depending on the size of the business being sold. Business brokers can expect to make over $100,000 per year from completing even a small number of average-sized deals. However, larger sales bring in larger commissions. For example, a 10 percent commission on a $2 million sale could net you $200,000 on its own (before expenses). The market for business brokers depends on the state of the economy and how many business brokers already exist in the area. The total number of brokers operating in the country ranges from only 2,500 to 5,000. This leaves ample opportunity for new brokers to enter the market. Currently, there are about 1,850 businesses for every business brokerage.

Be willing to budget your finances. While the income potential from business brokerage is significant, there is always the chance that market factors or simple bad luck can reduce your income for periods of time. Part of becoming a business broker, or holding any type of commission-based job, is accepting that you will have to save most of your money just in case you don't get paid for a while. That is, when you start making good money, don't immediately go out and spend it all on a new house, car, or other expensive items.

Setting Up for Success

Cultivate a business background. A business background is essential to success as a business broker, as the job requires understanding every aspect of another business well enough to sell or buy that business on behalf of a client. Your experience will also help convince a client that you know what you're doing. Perhaps the most useful experience would be owning or operating a small business yourself. This can help you understand the small business mindset and give you insight into how they function. Those with corporate backgrounds, however, may have a greater understanding of larger businesses that can be useful in making larger deals. You don't need direct experience to become a business broker, particularly if you join a brokerage that provides training. However, you will still need a deep understanding of business operations and concepts to be successful.

Work on personal attributes that are predictive of success as a business broker. To be successful, you will likely need a sales aptitude, an ability to be diplomatic in difficult situations, and a stick-to-it determination to work hard and independently on your own schedule without becoming lazy. You should develop a knack for cultivating relationships with potential buyers or sellers and quickly developing a deep understanding of their business and industry. This includes seeking out every possible lead to ensure that you don't miss any potential buyers. You will also need strong negotiation skills and the ability to keep the buyer or seller on track and confident in the deal.

Investigate training options. There are several business broker training alternatives available for individuals who want to enter the profession. Try searching online for “Business Broker Training.” For example, the American Business Brokers Association offers two-day training programs across the country for aspiring brokers. If you choose a third-party option, make sure to look for reviews from previous students so that you know the training program is reputable. You should look for training programs that offer post-classroom support, preferably at no cost.

Learn the requisite skills. Regardless of their background, most individuals will need some training specific to business brokerage. There are many skills that need to be learned through training, experience in other lines of work, or direct business brokerage experience. Just a few of these are: How to recast financial statements for discretionary cash flow? How to use the most appropriate business appraisal methodology? How to build a marketing package for each type of business? How to maintain strict confidentiality while marketing nationally? How to select the most appropriate advertising venues for marketing a business? How to conduct the initial buyer / seller meeting without raising animosity? What are the do’s and don’ts of successful negotiations on price and terms? How to get the transaction to the closing table? Closing the transaction with proper documentation and follow up?

Working as a Business Broker

Apply to join an existing brokerage firm. In order to gain experience as a business broker, your best option is to apply to join an existing business brokerage firm. Taking a reduced commission is worth the amount of mentorship and training you will receive from working with experience brokers. It will also be easier to find leads if you are working for an established firm. Just make sure that the brokerage is willing to actually train you, rather than just handing you a list of contacts and expecting you to make a sale.

Join another type of office. Many business brokers work together with those in other fields, joining their offices to handle business deals that may come through. For example, many brokers work with real estate agents, accountants, or bookkeepers and can handle any potential business sales that the others hear about when dealing with local businesses. Working in this type of environment can gain you easy referrals and also give the you the experience necessary to get your broker license.

Get licensed in your state. In 17 states, business brokers need to be licensed as real estate brokers. You will also need a real estate sales license if you are dealing with the sale of any real estate as part of your business brokering (in all states). Getting the sales license is simply a matter of going through required classes and passing the license examination. From here, you can gain more experience and then repeat the process to move up to a broker's license. The exact requirements for each level and the relevant coursework vary by state, so check with your state's department of real estate to see the current requirements. You will also likely be required to pass a background check before obtaining either license.

Become a certified broker. Experienced and educated business brokers can increase their reputability by earning certifications in the field. Specifically, the American Business Brokers Association (ABBA) can bestow the Accredited Business Intermediary (ABI) designation to qualified brokers. Similarly, the International Business Brokers Association (IBBA) offers the Certified Business Intermediary (CBI) designation. Acquiring either of these require applying to the relevant organization and paying a fee. California and Texas also have state-specific organizations that offer credential to their members.

Start your own practice. Your other option for becoming a business broker is to start your own shop. If you're going to work as a sole practitioner, this can be very cost-effective, as you can work out of your home and avoid unnecessary expenses. However, working from home and working alone can make it difficult to get focused. In addition, you miss out on the mentorship and training available from existing brokerage firms. Remember that you will need some operating capital to keep the lights on until you start closing deals.

Finding Success

Build up your relationships. Odds are, you won't have much success when you first start out. Most of your cold calls will lead nowhere, your few leads may not materialize as actual deals, and it may seem like you're invisible to sellers. You'll be spending money on advertising, transportation, and paying your own way without earning a paycheck. However, in time you will begin to see deals come through if you work long and hard enough. All it takes is building up relationships and referrals to get the green light on a deal. Make sure you understand from the start that it may take up to six months before you actually see any brokering work.

Give each deal your all. When you do finally get a brokering deal, focus all of your efforts on understanding every aspect of that business. Meet the employees, learn to use their equipment, dig deep into their books, and work to know their market and competitors better than they do. Make your client confident in your ability to successfully represent their business by showing a true concern and understanding for what they do. If you work hard enough, your efforts with return you a good sale price for the business, which in turn nets you a higher commission.

Respect your clients. Clients may have any number of issues with their businesses, from poor bookkeeping to disorganized operations. However, it is not your job to judge what they are doing wrong, but to prepare their business to be sold. To do so, you'll have to be respectful and courteous as you work to understand their business and organize their bookkeeping, for example, in such a way that potential buyers might better understand it.

Work towards becoming specialized. As in all lines work, specializing is a proven method for reputation building and earning referrals. Business brokers who specialize in a certain industry can create a reputation as an industry expert, and will turn into a "go to" for certain types of deals. Your specialty can be something like retail, restaurants, or technology businesses. This specialty can arise either from your previous experience or as a result of your completing a number of deals in this industry. If you are drawn to a particular segment of the industry or specialization, consider getting more training or education in it. This will make you more qualified to offer specialized services in that area.