What Is the Difference Between a Business Broker and a Real Estate Broker?

When selling a business, especially when property is involved, working with a fully accredited business broker is critical. And while business brokers do have real estate licenses, don’t be confused. There are many important differences between business brokers and real estate brokers. 

One important difference is the fact that business transactions are private transactions.  They have to be since owners are protective of their company data. Public knowledge of the sale of a business can hurt the brand, sales, and scare the employees of the business, so unlike real estate deals, most business deals are done confidentially. When executed properly, the customers, vendors, and the employees find out about the sale after the date of closing. This is very different than real estate deals, and it affects the marketing, the conversations, the documents needed, and the data available.

Private transactions mean there are no recorded deeds of a sale that can be researched on government websites for businesses, that Non-disclosure Agreements (“NDAs”) must be signed before disclosures of primary facts including even the name and address of a business, and it means that pertinent facts such as days on market or previous sale prices are not published.

Another interesting difference is that unlike real estate deals, there’s a huge interest in the owner of the asset in a business sale. This is virtually the opposite of a real estate deal where you’re basically trying to keep the buyer and seller away from each other, and you may stage the property so the buyer can imagine their own use of the space instead of the way the current resident uses the property. Buyers want to learn about and often speak with the current owner of the business because chances are it’s successful because of their actions.

After a business is proven to be financially sound, business deals are all about the qualitative, historical aspects of the business. Buyers are highly interested in how the owners got the business to its current state, it it’s sustainable, if it’s owner dependent, and if they can step in to make the same money the original owners make. They want to understand the relationships between the owner and the staff, the vendors, the customers. These factors can be deal breakers if the buyer doesn’t feel they can fit into these relationships.

The buyer seller meeting is one of the most critical aspects of a business deal, and there is lots of coaching and preparations that go into these meetings, so they go well. This is not a factor in real estate.

Finally. Business brokers know and understand the financial aspects of their client’s businesses. This may not be a realm that real estate brokers commonly go into with their clients, but a comprehensive understanding of Income Statements, Balance Sheets and Statements of Cash Flow is critical to understanding how a business works and articulating his value to prospective buyers. Furthermore, often owners don’t have a firm grasp on their financials, so the ability to communicate with their accounting professionals becomes imperative as well. 

Get in touch with California Business Advisors today.
Aaron Thom, California Business Advisors, Inc.