OnwardLesson 4.6
Working with a broker: what they do and who they work for
A business broker is hired by the seller, works for the seller and is usually paid by the seller when the sale closes.
The short version
- A business broker is hired by the seller, works for the seller and is usually paid by the seller when the sale closes.
- They help you, but their role is to get the best outcome for their client, not for you.
- Brokers prepare the information package, screen buyers, answer questions and keep the deal moving.
- Be honest and prepared. Keep your own price thinking, negotiating limits and concerns for your own advisors.
- A good broker relationship helps you, on this deal and the next.
Who the broker works for
When a seller hires a broker, the broker represents the seller. The seller usually pays the broker's fee, typically as a percentage of the sale price at closing. That means the broker's goal is to sell the business on terms good for the seller.
That does not make the broker your opponent. A broker wants the deal to close, and that requires a buyer who is informed and able to finance it. Many brokers are helpful, responsive and fair to buyers. But they are not your advisor.
What a broker does
- Prepares the listing and the information package, often called a CIM, short for confidential information memorandum.
- Screens buyers and manages confidentiality agreements.
- Answers questions and arranges meetings with the owner.
- Presents offers to the seller and helps negotiate.
- Keeps due diligence, financing and closing moving.
What to share, and what to keep
Share freely: your buy box, your background, how you will pay, your timeline and your team. The broker needs these to take you seriously.
Keep for your own advisors: the most you would pay, how far you would move on terms and your concerns about the business. Anything you tell the broker may reach the seller.
Your own side of the table
Because the broker works for the seller, your M&A attorney, your CPA and, if you use one, a buy-side advisor are the people who work for you. Lesson B2.1 and Lesson B2.3 cover them.
Being a good counterpart
- Be prompt and organized.
- Ask clear questions, in writing where you can.
- Give honest, fast feedback, including a clear no.
- Respect the owner's time and confidentiality.
Brokers remember buyers who are easy to work with.
Take this to your own people
The questions for this topic, for your attorney, your accountant or your lender.
- For a broker: "Are you representing only the seller on this deal?" Listen for: a clear answer. In some states and situations a broker may represent both sides, which should be disclosed in writing.
- For your M&A attorney: "What should I avoid telling the broker before I make an offer?" Listen for: the information that weakens your position if it reaches the seller.
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