Business brokers are the conduit of information between the buyer of a small business or franchise and the seller. Business brokers are also the co ordinator of information flow between the other professional services which are involved in a small business sale.these other stakeholders include accountants, bank managers, finance brokers, settlement agents, law firms, managing agents, franchisors and also government licensing authorities.
Business brokers are employed by the business seller on a success fee basis. They usually only get paid when the business settles and the new proprietor takes over and the outgoing owner banks the sale proceeds.
It is important for business purchasers to understand that whilst the broker is working with them on the purchase, the business broker owes his primary loyalty to the seller, as it is the seller who pays his fee. The business broker still has a duty of care to the buyer, but you can only serve one master at a time and in Ausralian SME transactions that master is the seller.
Business brokers commonly charge the seller between four and eight per cent of the saleable value of the business as a success fee for SMEs. This compares with arround 2-3% of the sale price of a house for real estate agents success fees.
It must be noted it is far easier to broker a house sale compared to a business sale and also that the "fall over rate' for businesses placed under offer is arround 40% compared to 5% for house sales. it should also be recognised that business brokers usually labour for 6- 12 months marketing a small medium enterprise for sale whilst the number of days from listing to settlement for houses is about 80 days.
The skill level and depth of knowledge required to broker a business or franchise sale is generally regarded as very high..... hence the relatively low number of business brokers in the West Australian business market.