13.4 Business Brokerage

Business Brokerage vs. Real Property Brokerage

The process is similar to real estate brokerage (secure a listing, procure a buyer, facilitate closing), but business brokerage requires additional knowledge—especially accounting and valuation.

Opportunity vs. Enterprise Brokerage (Common Classification)

• Opportunity brokerage: typically a smaller business (often a proprietorship/partnership). The deal may involve a sale of assets and an assignment of a lease.
• Enterprise brokerage: typically a larger business (often a corporation). The deal may involve a stock sale and multiple real estate parcels owned or leased.

Transaction Knowledge: Asset Sale vs. Stock Sale

Asset Sale

• Buyer purchases some or all business assets (and often the related real estate interest).
• Usually does not include taking over the existing business entity or its liabilities.
• Often preferred by buyers who want to avoid unknown liabilities.

Stock Sale

• Buyer purchases ownership of the company (the corporate entity).
• Includes assets, and may include existing and future liabilities tied to events before the sale.
• Can be preferred for continuity, identity, or possible tax advantages.

Common Transaction Documents

• Sale contract (what is being sold and under what terms)
• Real estate sale contract or lease assignment (for the real property interest)
• No-compete agreement (seller agrees not to compete under stated terms)
• Consulting agreement (seller assists buyer with transition)

Accounting Basics for Business Brokerage

• Income statement: income, expenses, and profit.
• Balance sheet: assets, liabilities, and net worth.
• Assets: tangible (cash, inventory, equipment, real property, receivables) and intangible (name, trademarks, licenses, contracts, goodwill).
• Liabilities: may include short-term debt (accounts payable) and long-term obligations (leases, mortgages), especially in stock sales.

Goodwill (Two Common Meanings)

• An intangible value factor (reputation, location, market share, name recognition, etc.).
• The difference between the owner’s price and the value of the other assets.

Determining a Price (Why It’s Hard)

Pricing a business can be difficult because owners may overvalue what they built, records may be incomplete, and profitability can change depending on the buyer’s management style and costs.

• Past, present, and projected net profits (and capitalization of income)
• Risk and certainty of future profits
• Value of assets and impact of goodwill
• Prices paid for similar businesses
• Other risks specific to the business

Business Brokerage Regulation (High-Level)

• Licensing: generally requires an active real estate license; some transactions may also involve securities licensing.
• UCC: regulates sale of personal property and supports standardized documents (promissory notes, security agreements, bills of sale).
• Bulk Sales Act: protects creditors when a business sells a large portion of inventory; may require creditor disclosure and notice.