The Chicago business world is full of potential and to take advantage of lucrative opportunities, you need to be both street-smart and book-smart. But while we might love to do everything ourselves, the truth is we aren’t always good at everything we do. As a common solution, business brokers are individuals or companies that step in to assist clients in the purchase and sale of businesses.
For both big and small businesses, brokers can be valuable in bargaining for favourable prices, ensuring paperwork checks out, and licensing, among others.
But, having a broker isn’t always the right decision when purchasing a business.
Why Do People Avoid Hiring Business Brokers?
If you’ve been in the market as long as we have, you already know that brokers don’t always put the affairs of their clients first. Besides being expensive and charging high commissions, having a broker can make purchasing a business the worst experience of your life.
An example is that once you have authorized a broker to represent you, the payment terms are included in the listing contract. If the broker generates a satisfactory deal for the seller, they are paid their amount.
But unfortunately, some brokers require payment even if a sale did not occur or if the sale price was lower than anticipated. Then you are paying just for their services, or lack thereof, we should say!
What Does a Business Broker in Chicago Charge?
Business brokers advertise themselves as partners to their clients. But when you have a budget, you might find that the broker’s charges are too high!
Standard charges by brokers range between 5-10% of the business sale price. The broker’s fee is determined by the complexity of the transaction and the work involved in completing the sale.
Estimates place a broker’s earnings between $8,000 and $15,000 in sales commission with a pre-agreed minimum fee. When considering all these aspects, the broker might not be your best bet when buying or selling a business on a budget.
How Do Business Brokers Determine Charges With Every Transaction?
A broker in charge of a transaction represents the party that hired them. For example, a seller of an apartment building can hire a broker to market the building and find a buyer. In this case, the broker’s commission relies on what was agreed upon before the transaction commenced.
Do I Need a Business Broker To Buy a Business?
It is possible to buy or sell a business directly without using a business brokerage. While it’s true that brokers can help you find what you need, but they are not necessary for a business transaction.
If you have connections to buyers and sellers, you can go to them directly and reach agreements that work for both of you. Direct buying or selling is a solution that can work to your best advantage if the sale is handled correctly.
Why Sellers Pay for Business Brokers
When dealing with a business brokerage, you can establish your relationship on two levels.
1 – Business Brokers Help You Deal With Other Business Brokers:
Dealing with brokers in transactions can be challenging when you sell your business. Hiring a broker gives you a tactical edge in negotiations and might determine the best terms and prices with the final purchase.
2 – Business Brokers Can Help You Get What You Need:
If you are looking for businesses that meet specific criteria, having a broker in your corner is a great decision. The chances are that your broker already knows about various deals and negotiations; they will take care of everything on your behalf. Saving you tedious legwork.
How Can You Find a Business Without a Business Broker?
If you choose to opt for direct selling or buying, it’s possible to get what you want. One way you can find a business without a broker is by networking.
The right inquiries can put you on the path of a profitable business deal if you use your social media or other personal connections. If you speak to someone running a business, the chances are that they know someone who plans to sell and vice-versa.
Advertising is another solid approach to succeeding without a broker. If you know what you need, get the message out there, and a serious seller or buyer will be in touch. Brokers are helpful, but they are not the only solution to buying and selling businesses.
When Can Business Brokers Be Useful In a Transaction?
While business brokers are not necessary for finding, purchasing, or selling a business, they are occasionally still valuable. Brokers are always looking for opportunities and can link you to a deal before it goes public.
Additionally, brokers can be useful in deals that are too complex to navigate as a buyer. Some brokers specialize in specific industries, and their input can bring a deal to successful completion.
What Happens When Multiple Business Brokers Are Involved In The Same Deal?
In some transactions, the number of brokers might exceed one since every party involved has a representative. When the listing broker obtains the buyer, they receive the entire commission that was slotted for brokerage. The single broker takes the shares that would have been divided by other brokers in the same deal.
However, when a different brokerage (not the listing broker) brings the buyer in, they share the commissions 50/50. In such a case, the new brokers that facilitate the purchase get a cut of the general brokerage fee.
No matter how you slice it, that’s too many pieces of the financial pie that you’re not seeing.
Final Thoughts: Hiring a Chicago Business Broker vs Selling Independently
Whether you choose to hire a business broker or go it alone, buying or selling a business can be stressful. A broker can help make your life easier, but more often than not, they are looking for a quick deal and easy money—even if you lose out on additional cash.
Watch out for your interests by connecting with someone that will always put your needs and budget first. Get in touch with us today to start talking about your goals when buying or selling your business. We’ll help you decide if a Chicago business broker is the way to go!