A few years ago, PricewaterhouseCoopers ran a study that looked at the scope of the franchise industry in the United States and franchises’ economic contribution to the overall economy. The results are pretty surprising.
According to the Franchise Business Economic Outlook report, there are approximately one million franchises operating coast to coast in the United States, employing nearly a million people and contributing around a trillion dollars to the economy.
The surprising thing given those impressive numbers is that one in five businesses in the U.S. is up for sale, yet business owners are reluctant to simply put the business on the market for fear of grinding daily operations to a halt. This is where a business broker can help.
Making Serious Money as a Business Broker
A business broker essentially acts as an intermediary between buyers and sellers — or owners and entrepreneurs — and walks each through the private buying and selling processes. So, you might be wondering, how do business brokers make money?
Business brokers provide professional valuations for businesses, craft confidentiality agreements, and provide a confidential business review as an offering summary. From there, a business broker shops around or “markets” the business confidentially to a wide number of entrepreneurs.
- Curating the Business for Buyers
Once the buyer and seller have agreed on a confidentiality agreement, business brokers would then typically acquaint prospective buyers with the business over time.
This is actually a hugely valuable service to business owners because it allows them to eventually transfer ownership without worrying their employees and customers, or stalling their operations.
Through the marketing and tentative stages of the buying process, business brokers might be expected to conduct interviews with potential buyers and intermediate buying concerns between prospective buyers and business owners.
- Valuable Service to Business Owners
Business owners are willing to pay a premium for these services because it takes a lot of the selling burden off of their shoulders and allows buyers the chance to see a fully operational business before making a decision.
With that in mind, another thing that business brokers usually do to help business owners is carrying out a due diligence investigation to help along the sale of the business and put the prospective buyer in a more informed position.
From there, it comes down to seal the deal: brokers would typically schedule and intermediate the sale of the business.
Business Brokers: Great for Buyers and Sellers
Let’s take the perspectives of a business owner and entrepreneur, in turn, to find out why business brokers are indispensable.
From a business owner’s perspective, business brokers are hugely helpful because they properly price the business and allow owners to market the business to the most qualified and appropriate entrepreneurs.
From a buyer’s or entrepreneur’s standpoint, a business broker is also invaluable since brokers can work with potential buyers to really hone in on the exact business that they’re looking for — thus saving buyers time, hassle, and a whole lot of money.
Business brokers also go through a due diligence investigation for the seller’s benefit and potentially assist buyers in obtaining business acquisition loans.
It turns out, unsurprisingly, that there’s a ton of money to be made here. Business brokers are typically very well compensated by business owners via commission.
The commission percentage usually hovers around 10 percent to 12 percent — and this can result in substantial profit for brokers when you’re talking about multi-million-dollar businesses. The exact fee arrangement should be thoroughly explained in the listing agreement.
To find out more about the potential to turn a profit with Transworld, a leading business broker, contact us today!