A business broker is a person or firm who/which acts as an intermediary between sellers and buyers of small businesses.

Business brokers, also called business transfer agents, or intermediaries, assist buyers and sellers of privately held small business in the buying and selling process. They typically estimate the value of the business; advertise it for sale with or without disclosing its identity; handle the initial potential buyer interviews, discussions, and negotiations with prospective buyers; facilitate the progress of the due diligence investigation and generally assist with the business sale.

Agency relationships in business ownership transactions involve the representation by a business broker (on behalf of a brokerage company) of the selling principal, whether that person is a buyer or a seller. The principal broker (and his/her agents) then become the agent/s of the principal, who is the broker’s client. The other party in the transaction, who does not have an agency relationship with the broker, is the broker's customer.

Agency relationships with clients and customers

Agency relationships in business ownership transactions involve the representation by a business broker (on behalf of a brokerage company) of the selling principal, whether that person is a buyer or a seller. The principal broker (and his/her agents) then become the agent/s of the principal, who is the broker’s client. The other party in the transaction, who does not have an agency relationship with the broker, is the broker's customer.

Transactions Brokers

In some states of the USA, business brokers act as transactions brokers. A transaction broker represents neither party as an agent, but works to facilitate the transaction and deals with both parties on the same level of trust.

Business brokers and sellers

Services provided to seller as client

Upon signing a listing contract with the seller wishing to sell the business, the brokerage attempts to earn a commission by finding a buyer for the sellers' business for highest possible price on the best terms for the seller. To help accomplish this goal of finding buyers, a business brokerage commonly does the following:

• Ensures Confidentiality--Brokers have established systems in place to protect the confidentiality of a business.
• Appraisals--Most business owners have no idea what their business is worth. Certified Business Brokers are trained in business valuation and can help business owners understand the true value of all their hard work and sacrifice.
• Market Knowledge--Brokers make their living selling businesses. They are in the market on a daily basis conversing with Buyers. A local business broker understands the local market as well as what a business is worth.
• Saves time and stress
• Listing the business for sale to the public, often on a Multiple Listing Service, in addition to any other methods.
• Based on the law in several states, providing the seller with a business condition disclosure form, and other forms which may be needed.
• Preparing necessary papers describing the business for advertising, pamphlets, tours, etc.
• Advertising the business. Advertising is often the biggest outside expense in listing a business.
• Being a contact person available to answer any questions about the business and to schedule showing appointments
• Ensuring buyers are prescreened so that they are financially qualified to buy the business; the more highly financially qualified the buyer is, the more likely the closing will succeed.
• Negotiating facility lease assignment or transfer, negotiating with creditors, assisting Buyer in obtaining financing.
• In some cases, holding an earnest payment in escrow from the buyer(s) until the closing. In many states, the closing is the meeting between the buyer and seller where the business ownership is transferred and the businesses name is conveyed.

Business brokers attract prospective buyers in a variety of ways, including listing limited details of available businesses on their websites and advertising in business newspapers and magazines. Brokers also directly approach prospective buyers and sellers to gauge interest.

The "listing" contract

Although there can be other ways of doing business, a business brokerage usually earns its commission after the business broker and a seller enter into a listing contract and fulfill agreed-upon terms specified within that contract. The seller's business is then listed for sale, often on a Business specific Multiple Listing Service (MLS) in addition to any other ways of advertising or promoting the sale of the property.

In most of North America, a listing agreement or contract between broker and seller must include the following: starting and ending dates of the agreement; the amount of compensation due to the broker.

Brokerage Compensation

There are three forms of Brokers compensation; hourly, retainer, and success fee (commission upon a closing). A Broker may use any one, or combination of these when providing services. The most common form of compensation is a success fee commission where the payment of a commission to the brokerage is contingent upon finding a satisfactory buyer for the business for sale, the successful negotiation of a purchase contract between a satisfactory buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller. Just as major investment banks normally charge a retainer for services, more business brokers have started to embrace this practice as well. The retainer helps covers the upfront costs incurred by the broker to perform services and shows a commitment on the part of the client (seller or buyer) that they are serious. Certain types of merger and acquisitions transactions involve securities and may require that an intermediary be securities licensed in order to be compensated.

In North America success fee commissions range from 5% to 12%. Usually, the smaller the transaction, the larger the commission. "Main Street" businesses, those with enterprise value between $100,000 and $1,000,000 can expect commissions to average between 10% - 12%. Commissions are determined between the client (seller or buyer) and their broker and are normally paid at closing. The larger middle market transactions use the Lehman or the Double Lehman scales.

The standard commission is likely to be lower in the United Kingdom (see Lehman scale). Commissions are negotiable between seller and broker. The commission could also be paid as flat fee or some combination of flat fee and percentage, particularly in the case of lower-priced businesses, businesses in the multi-million dollar price, or other unusual business assets. The details are determined by the listing contract.

Out of the commission received from the seller, the broker will typically pay any expenses incurred to do the work of trying to sell the listed businesses, such as advertisements, etc.

All compensation to a broker paid by a third party must be disclosed to all parties.

Licensing of business brokers

In the US, licensing of business brokers varies by state, with some states requiring licenses, some not; and some requiring licenses if the broker is commissioned but not requiring a license if the broker works on an hourly fee basis. State rules also vary about recognizing licensees across state lines, especially for interstate types of businesses like national franchises. Some states, like California, require either a broker license or law license to even advise a business owner on issues of sale, terms of sale, or introduction of a buyer to a seller for a fee. All Canadian provinces with the exception of Alberta, require a real estate license in order to commence a career. According to an IBBA convention Seminar in 2000, at least 13 states required Business Brokers to have a Real Estate license. The following require a license to practice as a business broker: Arizona, Arkansas, California, Colorado^[1], Florida, Georgia, Idaho, Illinois, Michigan, Minnesota, Nebraska, Nevada, Oregon^[2], South Dakota, Utah, Wisconsin, and Wyoming.

Certain types of merger and acquisitions transactions involve securities and may require that these "middlemen" be securities licensed in order to be compensated.