A business broker is a professional who assists buying and selling businesses. They act as intermediaries between buyers and sellers and help facilitate the entire process from initial outreach to deal close.

A sellside business broker represents the seller and works to facilitate the best deal possible for their client. Typically sellside brokers perform an initial valuation and then proceed to marketing the business, which consists of marketing material preparation, outreach to their network of buyers, assistance with diligence requests, and negotiation of deal terms. Some brokers list the deal on an ongoing basis, while others run a more formal auction process with set bid deadlines. Our view is that in most cases (particularly for businesses with over $1 million of EBITDA), the best business broker firms will run an auction process, as it is a very helpful strategy to achieve the best outcome for the seller (which is typically a combination of financial and qualitative goals).

Selling a business is often a challenging process, and having a sellside broker in your court can be helpful to lean on their expertise and guidance. Sellside brokers can also add value by maximizing value for your business, specifically by getting your business in front of the right potential buyers and often by running a competitive auction process. Before engaging a sellside broker, it is crucial to understand their process, experience within your industry, and quality of their buyer network looking for businesses like yours. We believe these are key questions to ask a business broker before entering into an engagement.

Business broker fees are primarily success-based with commission rates calculated from enterprise value. Two common structures utilized are the Lehman and Double Lehman scales, which generally vary from 1-5% and 2-10% of enterprise value, respectively. Some brokers also charge an upfront retainer for their services, while others are 100% success-based.

Yes it is definitely possible, although heading into a deal it is important to have a solid understanding of key items that brokers typically help with, such as: 1) knowing the approximate value of your business, 2) strategies to best represent your business and story, 3) information that will likely be required by buyers in diligence, 4) typical deal structures that buyers utilize, and 5) other possible risks of proceeding without a broker.

At Minglewood, we help with these key questions — from determining what your business is worth, getting you front of the right buyers, and preparing marketing materials if needed. To learn more about our services and how to sell a small business without a broker, please see our Services page or reach out to us here.

It depends. Sometimes it makes sense to engage a broker because their buyer network and auction process will help you get the best deal. Other times, it may not make sense to engage a broker because the potential value they bring to the table may not be worth the fees. With our experience in advisory and brokerage, our team can help you evaluate these questions both quantitatively and qualitatively with feedback specific to your business.

In addition, business brokers vary significantly in capability and quality. If you choose to engage a broker, we can help you find a business broker that is worth the fees. Please keep in mind that a typical business broker listing agreement has a set term and sometimes a tail period which can amount to months or years. Choosing to work with a business broker is therefore often a medium to long-term commitment, so it critical to enter into an engagement fully informed.

In theory as a rule of thumb, your business is valued as your cash flows times a valuation multiple. In practice this is a bit more complex:

Cash Flows: Typically buyers will value a business off of the most recent year or trailing twelve months (TTM) financials. However, they may use other time frames depending on the circumstances, such as a several year average for a business with lumpier cash flows, or forward-looking cash flows for a business that is growing quickly.

Multiple: The multiple is dependent on a number of factors, such as the industry and competitive positioning, historical financial performance, growth opportunities, team and systems in place, and predictability of earnings, among other factors. Speaking with a business valuation specialist that has their pulse on market multiples, trends, and outlook can be very helpful heading into a sale process.

Our business valuations are free with zero commitment. To learn more about our service offering, please see our Services page.