Key Insight
The broker works for the seller. They are not your advisor, your friend, or a neutral party. Understanding this changes how you interact with them — and what you share.
What Business Brokers Do
Brokers represent sellers in the sale of businesses, typically in the $100K-$5M range. Their core services:
- Business valuation: Assess market value and set the asking price
- Marketing: Prepare the CIM and teaser, list on marketplaces (BizBuySell, BizQuest, LoopNet), reach out to their buyer database
- Buyer qualification: Screen interested parties, get NDAs signed, qualify financial capacity
- Transaction management: Coordinate due diligence, manage communication between parties, help navigate to closing
- Negotiation support: Work on behalf of the seller to achieve the best terms
How Brokers Are Compensated
The standard commission is 8-12% of the sale price, paid by the seller at closing. On a $1M sale, the broker earns $80,000-$120,000. This creates a structural incentive toward closing — even at a price or on terms that may not perfectly serve the seller's long-term interests.
The Lehman formula (5% on the first $1M, 4% on the next $1M, etc.) was once common; most SMB brokers today use a flat percentage.
What Brokers Won't Tell You
- The seller's bottom line or motivation to sell
- Known issues with the business that haven't been disclosed
- Whether other buyers are at the table (though they may imply it)
- Their actual opinion of whether the asking price is reasonable
Working with Brokers as a Buyer
Brokers can be genuinely helpful to buyers — they manage a lot of the process overhead and can smooth communication. But remember:
- Don't share your walk-away price or maximum offer
- Don't over-explain your financial situation
- Verify everything the broker tells you about the business independently
- Understand that their incentive is to close the deal, not protect your interests