Neufeld Legal P.C.
Purchase Business - Strategy and Law of Buying a Business
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THE BUSINESS BROKER

What is a Business Broker and Should You Use One?

A business broker is similar to a real estate broker to the extent that they try to put buyers and sellers together. Instead of real estate being sold, they focus on businesses. A business broker will provide you with access to businesses that are available for sale that you may not be able to find on your own. They can narrow the search for you to businesses that fit your criteria and they can help you avoid a lot of wasted time.

Understanding the Challenge Facing Business Brokers

Nearly ninety percent of potential buyers that business brokers work with never buy a business. While this is part of the risk involved in their chosen profession, this does not give you the right to waste their time. Accordingly, they may be somewhat hesitant when working with new clients until you demonstrate your sincerity and commitment to buying a business. There is no doubt that if you are a serious and educated buyer then a good broker will go above and beyond the call of duty to service your needs. Be respectful of their time and realize that they have to make a living. If at any time you decide to drop out of the hunt to buy a business then let them know immediately. Conversely, if you do not feel that they are extending their best efforts on your behalf then find another one.

How Can a Business Broker Help You

There are two significant ways that a business broker can help you. First, they can provide you with listings and information on businesses that are available fro sale that you would not discover on your own. In other words, they have the database from which you can search. Secondly, they can be "used" as the "bad guy". Once you get into negotiations with a seller you should let the broker deliver any bad news or commentary that you may have. The reason for this is because you are going to need the seller's help in completing the deal and thereafter for training and assistance. By letting the broker deal with the bad news you can maintain the integrity of your relationship and keep yourself in a third party position somewhat if renegotiations are needed.

How Can a Business Broker Hurt You

If you use the wrong business broker they can hurt you significantly. They will be a monumental waste of your time. They can send you looking in the wrong direction altogether. They can try to work both parties and may not make you privy to everything that they are discussing with the other broker. If they represent both you and the seller their agenda may not be upfront and they could very well be in a conflict of interest position. This is specifically why you must control the negotiations and use them properly or you may find yourself terribly frustrated.

How To Hire The Right Business Broker?

Before you hire an individual business broker arrange to meet with the owner of the brokerage firm. Let them know as much as possible about your goals, experience, wants and needs. Have them suggest a broker to you from their stable who they believe will fit best with you. Do not allow yourself to meet with the broker that they may recommend yet. Tell the owner that you prefer to contact the broker to set up a meeting.

Checking Their References

Get the names of purchasers and vendors that they have worked for in the past. Once they give you the list of 4-5 of each, ask them for a couple more. The reason you want to do this is because they will naturally give you the names of people that they believe are pleased with them so try to get some additional ones. Contact each one of these and ask them if they could tell you what they believe the broker's strengths and weaknesses are. Be sure to ask each one if they were going to buy or sell a business in the future would they use them again. Tell them the approximate price business you are looking for and ask if they feel that the broker is well suited for your needs. Ask them what it is specifically that the broker did well or poorly for them.

An Expense That Can Make Sense

Even though a business broker may earn a handsome commission from the business you buy, they are always at risk of earning zero if you don't buy. You shouldn't begrudge their commission; if they do their job, they have generally earned it (while incurring the costs associated with many failed business representations).

For experienced legal advice when purchasing a business, contact business lawyer Christopher Neufeld at Chris@PurchaseBusiness.ca or by telephone at 416-887-9702 [Toronto]; 403-400-4092 [Calgary]; or 905-616-8864 [South West Ontario].

 

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The information presented herein is intended for information purposes only and solely as a general guide. The information is not intended as legal advice. It is a summary of selected/potential issues and does not represent a definitive or complete statement of strategies and law relevant to scenarios that are highly particularized, fluid and rarely, if ever, certain and fully disclosed. The information may not address the special needs, interests and circumstances of a particular scenario, with a single factor potentially necessitating an entirely different approach. Scenarios differ and you are strongly urged to seek specific professional business and legal advice.

Neufeld Legal P.C. is strategically positioned to effectively serve key Canadian business markets, with offices located in Toronto, Calgary, Mississauga and Burlington. As such, we are capable of effectively serving the western Greater Toronto Area (GTA), including downtown Toronto, Mississauga, Burlington, Oakville, Hamilton, Brampton, Milton, Guelph, Kitchener Waterloo, Cambridge, London, St. Catharines and Niagara Falls, together with the city of Calgary and southern Alberta. Copyright 2010.

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