Business Broker: What They Do and What Buyers Should Know
A business broker is an intermediary who facilitates the sale of small businesses — typically those under $5 million in enterprise value. Brokers market the business for sale, qualify potential buyers, manage the information flow during due diligence, and help coordinate the closing process. They are almost always hired by and represent the seller, not the buyer.
How Brokers Are Paid
Business brokers work on commission — typically 8% to 12% of the final sale price, paid at closing by the seller. Some use the "Lehman formula" or variations, where the percentage decreases as deal size increases. For deals under $1 million, 10% is common; for deals in the $1M–$5M range, 8–10% is typical.
Because brokers are paid on sale price, they have a natural incentive to maximize that price — which aligns with the seller's interest and runs counter to the buyer's interest. This is not a criticism of brokers; it's just the structure. Knowing it protects you as a buyer.
What Brokers Do for Sellers
- Prepare the Confidential Information Memorandum (CIM) — the marketing package about the business
- List the business on marketplaces (BizBuySell, BizQuest, their own network)
- Screen potential buyers and require signed NDAs before releasing details
- Present offers, help seller evaluate them, and coordinate counteroffers
- Manage the document flow during diligence
- Coordinate with attorneys, accountants, and lenders toward closing
What Buyers Should Understand About Brokers
The CIM is a marketing document. The Confidential Information Memorandum is prepared to present the business favorably. The add-backs will be maximized. The narrative will emphasize opportunity. Treat it as a starting point, not verified fact — everything significant requires independent verification in due diligence.
The broker is not your advisor. If a broker gives you advice, it may be genuinely helpful, or it may be designed to keep the deal together and the commission intact. Buyers handling deals above $500K should consider working with their own M&A advisor or attorney who is explicitly representing buyer interests.
Brokers do know the market. Despite the conflict, brokers who work in a specific market or industry can provide genuinely valuable market color — what similar businesses have sold for, what terms are normal, which issues are deal-killers in their experience. This institutional knowledge has real value.
M&A Advisors vs. Business Brokers
The term "M&A advisor" is used for intermediaries handling larger deals — typically $5 million and above. The sell-side M&A advisor performs the same fundamental role as a business broker but may work on a retainer-plus-success-fee structure and may have more sophisticated financial modeling capability. The IBBA (International Business Brokers Association) is the primary professional organization for business brokers; investment banks and boutique M&A firms handle larger transactions.
Finding a Broker-Listed Business
Most broker-listed businesses are found on BizBuySell, BizQuest, DealStream, or through direct broker networks (like those affiliated with IBBA). Off-market deals — businesses not listed with brokers — are sourced through direct outreach to business owners, referrals, or through search fund networks.
Related Terms
- Due diligence — where you verify everything in the broker's CIM
- Add-backs — often maximized in broker-prepared financials; verify independently
- Search fund — an alternative buyer structure that often bypasses brokers
Sources & Further Reading
- International Business Brokers Association (IBBA) — broker certification and market data
- BizBuySell — the largest marketplace for broker-listed businesses