In most cases, a business broker will be a transaction broker – working with both buyer and seller to effect a successful transition of the business – although typically fiduciary responsibility is to the seller.

Why?

1. Confidentiality
2. Complexity
3. Timeframe
4. Risk
5. Needs to be a win/win

Seller:

1. Typically thinks business worth more than it is or wants buyer to cover previous losses
2. Less sensitive to buyer’s concerns and needs
3. Often has difficulty letting go
4. Often has to carry back some of the paper—fear that the buyer will default and leave them with nothing
5. Overprotective advisors
6. Tax considerations

Buyer:

1. Difficult to really understand value of the business
2. Taking a gamble—is the business really as represented, will they be able to meet loan payments
3. Wants to pay the least amount possible; put down least amount, pay for future performance
4. Overprotective advisors
5. Tax considerations

Getting to “yes” is difficult! And, the letter of intent is only the beginning!

Pitfalls

1. Seller holds on too long (sell at the top!)
2. Seller wants to salvage something from losses rather than invest to build something that will sell
3. Sell has unrealistic timeline or wants to hedge their bet
4. Seller demands too high a price and buyer fails before seller gets his full payment

1. Buyer is financially unqualified
2. Buyer demands too low a price and seller does not cooperate during transition
3. Buyer doesn’t know what she wants and kicks tires
4. Buyer is undercapitalized for running business
5. Buyer overestimates ability to run the business

Best solution: educated constituency. Seller needs a good track record. Buyer needs realistic assessment of capabilities. Both need to like and respect each other.