How to find a business to buy with the help of a broker

What is the role of a business broker? 

Paul Vokaty is a certified merger and acquisition advisor with Avalon Partners in Montreal. He also serves as a board member of the International Business Brokers Association’s Canadian chapter. 

He says business brokers typically provide a wide range of services which can be grouped into two categories:

• helping business owners sell their company, which is also known as sell-side engagements
• assisting potential buyers in purchasing a business, also known as buy-side engagements

What is a sell-side engagement?  

A sell-side engagement refers to an agreement wherein a business owner hires a business broker to assist in selling their business. The broker acts as a representative of the seller, facilitating the entire selling process. They provide expertise in valuation, market analysis, and marketing strategies to attract potential buyers. Brokers also manage inquiries, qualify potential buyers, facilitate negotiations, help structure offers, and assist with the closing phase of the transaction. Their role is to maximize the value of the business while minimizing the seller's workload and stress. Ultimately, the broker's goal is to secure a successful sale for their client at the best possible terms.

What are the fees of a business broker for a sell-side engagement?

A business broker will often charge an initial fee for launching the project. They will then charge a commission once the deal is completed, which is typically around 12% for transactions below $1 million. The commission normally decreases based on size for larger deals. For a $10 million transaction for example, it will often be in the 4% to 6% range.

What is a buy-side engagement?

A buy-side engagement involves using the services of a business broker to assist in acquiring a business. In buy-side engagements, a business broker can help potential acquirers in two ways:

1. Assist with a passive search

A passive search involves adding the buyer to the broker’s internal database of potential acquirers. 

The broker will collect information about your acquisition criteria, background, target industries, desired location and investment timelines. You may also need to sign a confidentiality agreement and submit a financial capacity statement that shows you have the means to buy a business. When the broker identifies a company for sale that matches your profile, they will contact you to determine if you are interested in pursuing the opportunity. 

There’s usually no fee associated with being included in a broker’s database and the vendor pays the broker’s fee if you end up making an acquisition. In the absence of an exclusive engagement, it can be a good idea to register with several brokers to be included on their lists of buyers.

2. Perform an active search

This process involves hiring a broker to work directly for you. The broker will work with you to define your acquisition objectives. They will then contact several businesses that match your acquisition criteria, regardless of whether or not they are currently for sale. The objective of the broker is to convince these businesses to consider being acquired. 

If you, as the potential buyer, are interested in pursuing these opportunities, the broker can arrange to get more detailed information and perform a valuation. The valuation is usually done at the buyer’s expense unless the vendor wants to see the results, in which case both parties may split the cost.

If a deal goes through, you as the buyer pay the broker’s fee. In addition, the buyer usually pays the broker a retainer upfront and a monthly fee for their search time.

Why do you need a business broker? 

“Partnering with a business broker can significantly enhance your ability to find the ideal business to buy,” says Paul Vokaty. “By leveraging their industry expertise, network, and negotiation skills, a business broker streamlines the search process, identifies high-potential opportunities, and guides you through every step of the acquisition journey.”

Here are some advantages highlighted by Vokaty related to hiring a business broker.  

Access exclusive listings

Business brokers know about a wide range of businesses for sale, including exclusive listings that may not be publicly advertised. By working with a business broker, you gain access to a curated selection of businesses that match your criteria and preferences.

Leverage industry expertise and market insights

Business brokers specialize in specific industries and possess in-depth knowledge of market trends, valuation methodologies and industry dynamics. They can provide valuable insights into market conditions, emerging opportunities, and potential risks within your target industry. Leveraging their expertise, business brokers can help you identify businesses with strong growth potential and favourable market positioning.

Enhance the search and screening process

A business broker will work closely with you to understand your acquisition criteria, including industry preferences, location, budget and growth objectives. Based on your requirements, they will conduct a customized search and screening process to identify businesses that align with your goals. By filtering out irrelevant opportunities and focusing on high-potential prospects, a business broker streamlines the search process and saves you valuable time and effort.

Get assistance on negotiations and deal structure

Once potential acquisition targets have been identified, a business broker can assist you in negotiating favourable terms and deal structures with the seller. Whether it's negotiating the purchase price, payment terms or contractual agreements, a business broker acts as a trusted advisor throughout the negotiation process.

Get guidance to conduct due diligence

Conducting due diligence is a critical step in evaluating the viability and risk profile of a potential acquisition. A business broker can effectively manage the due diligence process, assembling key financial documents, legal contracts, operational procedures and other relevant information. Their experience and attention to detail can uncover potential red flags or hidden risks. 

Explore sources of finances

Securing financing for a business acquisition can be challenging, especially for first-time buyers. A business broker can help you explore financing options and connect you with lenders or investors who specialize in funding business acquisitions. Whether it's traditional bank loans, federal lending programs, or seller financing, a business broker can provide guidance throughout the financing process, increasing your chances of securing the necessary capital.

Manage the Close

During the closing phase of selling a business, a business broker can act as a skilled mediator. They facilitate communication and collaboration among all parties involved, including the seller, buyer, attorneys, accountants, and other stakeholders. With their expertise in negotiation and attention to detail, brokers can streamline the process, minimize delays and increase the chances of a successful transition of ownership for all parties involved.

How to find a business broker?

Your first step to find a broker should be to canvass your network of contacts (e.g. industry colleagues, accountants, lawyers, advisory board members, trade groups) to find the names of experienced and reputable business brokers who work with buyers. Some only work with vendors.

Next, look at the websites of prospective brokers to review their expertise. It’s a good sign if the broker has a designation as a Certified Business Intermediary, but some skilled brokers don’t have this certification.

You can also find a listing of businesses for sale on many brokers’ websites. These are companies whose owners have hired a broker to find a buyer for the business. If you find a company that interests you, you can contact the broker to get more information.

Next step

Learn all the steps involved in successfully purchasing a business by downloading our free guide for entrepreneurs, Buying a Business in Canada.