Key Challenges for Buyers

Most buyers start the process of looking at businesses for acquisition by working with brokers, who are serving as “dual agents,” which means that they are representing both the business owner and prospective buyers. This is known in the world of business brokerage and M&A as “double ending,” and it is extremely profitable for the listing broker. In fact, it is often twice as profitable for the listing broker, compared with a situation where the listing broker represents the seller only and a cooperating (outside) broker represents only the buyer. Given the substantial economic benefits of “double ending” to a listing broker, there is a very strong financial incentive for the listing broker to act as a dual agent and to resist agreeing to work with an outside broker. However, dual agency creates potential conflicts of interest, and often calls into question whether or not the buyer’s interests are being properly represented. 

Normally, a seller’s goal is to get the highest possible price for a property, while a buyer’s goal is to pay the lowest possible price. How, then, can a dual agent properly represent the competing interests of both a buyer and a seller? Obviously, this is not the optimal situation for any buyer, because it is typically the seller’s broker who is “educating” the buyer and guiding them through the acquisition process. In addition, a California real estate licensee acting as a dual agent cannot advise a buyer about how much or little to pay for a business. 

The key issue related to dual agency is that it cannot legally be forced upon you. It is your choice, and your choice alone, to decide whether or not you will permit the listing broker, or a salesperson within the broker’s firm, to act as a dual agent, and that permission must be in writing. 

Given that few business owners, who advertise their businesses as “for sale by owner,” have any prior experience in actually selling a business, they are often unprepared to supply a buyer with financial data and other pertinent information regarding the business in the proper form for business buyers. This is exceedingly important, because buyers need certain types of information in the proper form make intelligent decisions about whether or not to pursue the purchase of a business, and to get the purchase prequalified by an SBA lender, if the decision is to pursue the acquisition of a business. The lack of financial data in the proper format is typically accompanied by a dearth of relevant information about the history and operation of the business, as well as challenges to the business and competition. The process quickly becomes frustrating, time-consuming and often costly as the buyer attempts to collect the necessary information needed to make a knowledgeable decision, information that likely would have been readily available, had the business owner engaged a knowledgeable and experienced business intermediary to market and facilitate the sale of the business. 

Assuming the buyer moves forward to negotiating an offer with the business owner, this is all too often done verbally and a basic agreement settled with a handshake. Of course, this is just the first step and a detailed agreement needs to be memorialized in writing, so that there is no misunderstanding about the intent of the buyer and seller on various issues to be incorporated into a detailed written agreement. This necessitates the involvement of either and attorney or business intermediary. As is the case in so many situations, the “devil is in the details” and as details arise, they must be negotiated and agreed upon. Lots of potential for disagreements, delays and for opportunities for the acquisition to fail. Who will mediate those issues as they arise and who will guide the parties through the steps necessary to afford necessary protections for both parties and to provide for a successful close for the sale? 

An experienced buyer’s broker can provide the necessary guidance for the buyer and indirectly benefit the seller at the same. By having the benefit of an experienced buyer’s broker, the prospective business purchaser can save time and avoid expensive mistakes. At Business Acquisitions Advisors, we are happy to discuss the many ways that we can benefit you as a business buyer and facilitate a successful outcome at a reasonable cost.