What Is a Business Broker and What Do They Do

What is a business broker?

A business broker is an intermediary who represents the owner of a privately held company in selling it, or less often represents a buyer in acquiring one. If you have asked what is a business broker, the short answer is this: the broker runs the sale process so the owner can keep running the business. That process covers valuation, marketing, buyer screening, negotiation, and coordination through closing.

Business brokers usually work with small and lower middle market companies, the kind of owner operated businesses that sell to individual buyers, small investor groups, or competitors. Restaurants, home services companies, retail stores, medical and dental practices, manufacturing shops, distribution companies, and franchise resales are common examples. The buyers are often first time owners financing the purchase with an SBA loan and some seller financing.

A broker is not a lawyer and not an accountant. A broker does not draft the purchase agreement or give tax advice. The broker manages the market side of the transaction and works alongside your attorney and CPA, who handle the legal and tax work.

What does a business broker do during an engagement?

A typical engagement moves through a series of stages. The order is fairly consistent across the industry, though the time each stage takes depends on the business, the market, and the buyer.

1. 01Initial consultation. The broker learns about the business, the owner's goals, and the reasons for selling. Both sides decide whether to work together.
2. 02Valuation. The broker reviews several years of financial statements and tax returns, recasts them to show the earnings a buyer would receive, and prepares an opinion of value that supports an asking price.
3. 03Engagement agreement. The owner signs a listing agreement that sets the term, the exclusivity, the fee, and the scope of work.
4. 04Marketing materials. The broker writes a blind teaser that describes the business without naming it and a confidential information memorandum with full detail for qualified buyers.
5. 05Marketing and buyer outreach. The listing goes to online marketplaces, the broker's buyer database, and targeted outreach to likely acquirers.
6. 06Screening and NDAs. Interested buyers sign a nondisclosure agreement and provide financial information before receiving identifying details.
7. 07Buyer meetings. Qualified buyers meet the owner, tour the business, and ask questions.
8. 08Offers and letter of intent. The broker collects offers, helps the owner compare terms, and negotiates a letter of intent.
9. 09Due diligence. The buyer, the buyer's lender, and their advisers verify financials, contracts, licenses, and operations. The broker keeps document requests moving.
10. 10Closing. Attorneys finalize the purchase agreement, the lender funds, and ownership transfers. Many deals include a transition period where the seller trains the buyer.

Each stage protects the next. A credible valuation keeps the right buyers interested. Careful screening keeps confidential information away from people who cannot close. Organized documents shorten due diligence.

How is a business broker paid?

Most business brokers are paid primarily through a success fee, which is a commission due only when the sale closes. The success fee is usually calculated as a percentage of the total transaction value. Many brokers also set a minimum fee so the engagement makes economic sense on smaller deals.

Some brokers charge an upfront or retainer fee in addition to the success fee. That fee may cover the valuation, the preparation of marketing materials, or advertising costs. Whether an upfront fee is reasonable depends on what it buys and whether it is credited against the success fee at closing. Ask for that detail in writing.

For larger transactions, some intermediaries use a tiered structure where the percentage declines as the price rises. Others negotiate a flat fee or a hybrid.

When you review a listing agreement, look closely at these terms:

• How the transaction value is defined, including whether seller financing, earnouts, assumed debt, and real estate count toward the fee
• Whether the agreement is exclusive and for how long
• The tail period, which is the window after the agreement ends during which the broker still earns a fee if a buyer they introduced closes
• Termination rights for both sides
• What happens if you sell to someone you already knew before the engagement

None of these terms are unusual. They simply need to be understood before you sign. Your attorney should review the agreement.

How is a business broker different from an M&A advisor?

The difference is mostly size and process. Business brokers typically handle smaller transactions with individual buyers. M&A advisors and investment bankers typically handle larger companies, where buyers are private equity firms, strategic corporations, or family offices.

An M&A process is often more structured. It may involve a formal auction with bid deadlines, detailed quality of earnings reports, and extensive negotiation over working capital and indemnification. M&A advisors often charge a monthly retainer plus a success fee. When a transaction is structured as a sale of stock or other securities, securities law may affect who can be paid a transaction based fee; this is a technical area, so ask counsel how it applies to your deal.

There is overlap in the middle. Some brokers handle companies at the upper end of the small business range, and some M&A firms take smaller engagements. The label matters less than whether the intermediary has sold companies similar to yours in size and industry.

How is a business broker different from a real estate agent?

A real estate agent sells property. A business broker sells an operating company. The two skill sets overlap only at the edges.

When you sell a business, the buyer is paying for cash flow, customer relationships, trained staff, systems, equipment, inventory, and goodwill. The valuation relies on recast earnings, not comparable property sales. The key documents are financial statements, customer contracts, and the lease, rather than an inspection report and a title policy.

Confidentiality also works differently. A home listing is public by design. A business listing is blind by design, because public knowledge of a sale can unsettle employees and customers.

If your sale includes real property owned by the business or by you personally, real estate licensing rules may apply to that part of the transaction, and a licensed real estate professional may need to be involved. Ask your attorney how the rules apply to your sale.

What does a business broker do for buyers?

Most brokers represent the seller, and the seller pays the fee. Buyers still interact with brokers constantly, because brokers control access to most listed small businesses. A seller's broker will screen the buyer, share information under an NDA, answer questions, and coordinate due diligence. The buyer should remember that the broker's duty runs to the seller and should rely on the buyer's own attorney, CPA, and lender for independent advice.

Some brokers offer buy side representation, where the buyer hires the broker to search for and evaluate targets. That arrangement is less common and is usually paid by the buyer through a retainer, a success fee, or both. If you are looking to acquire rather than sell, our page on how to buy a business covers that side of the market.

How do you vet a business broker?

The right broker has experience with businesses like yours, a clear process, and terms you understand. Use these questions in an interview:

1. 01How many businesses similar in size and industry to mine have you sold, and can you describe those engagements in general terms?
2. 02Who will work on my engagement day to day?
3. 03How do you arrive at an asking price, and what documents do you need from me?
4. 04Where will you market the business, and how do you keep it confidential?
5. 05How do you screen buyers before they receive identifying information?
6. 06What is your fee structure, including any upfront fee, minimum fee, and tail period?
7. 07What are my options if I want to end the engagement?
8. 08What references can you provide from past clients or from attorneys and accountants you have worked with?

Listen for specific answers. A broker who promises a particular sale price or a guaranteed timeline before reviewing your financials is telling you something about their process. A careful broker will ask for documents first and give you a range with its assumptions explained.

Also check whether the broker belongs to a professional association, holds an industry credential, or has disciplinary history with any licensing body that applies to them. Requirements vary by state and by the type of transaction, so confirm what applies where you are.

When should you talk to a business broker?

Earlier than most owners expect. A conversation a year or more before a planned sale gives you time to fix issues a buyer would discount, such as heavy owner dependence, customer concentration, or messy books. A broker can also prepare a broker opinion of value, which is a market based estimate of likely sale price. A broker opinion of value is not a certified appraisal and should not be used where a court, lender, or tax authority requires one from a credentialed appraiser. Our business valuation page explains what that review covers.

If you are ready to talk about your company, our Texas business broker service matches you with representation for a Texas sale, and our sell your business hub collects every guide on preparing for a sale.