Business Broker

An intermediary who lists and helps sell small businesses, typically paid a commission by the seller upon a successful closing.

Example

A business broker prepares a confidential information memorandum summarising the bakery's financials and lists it for sale.

Important

A broker's compensation generally depends on the deal closing, which does not make their information dishonest but does mean independent verification of the numbers is the buyer's responsibility.

Related terms

• Due diligence — The work of independently verifying the claims made about an investment before committing money to it - the documents, the counterparties, the registrations and the numbers.
• Disclosure schedule — The document in which a seller lists the exceptions to what they are formally promising - the litigation, the defaults, the contracts that are not on standard terms.

Lessons that explain it

• Buying a small business almost always means buying a job — A small-business purchase is rarely a passive claim on cash flow. Most of what you are paying for is bound up with the seller's own labour, and the legal structure of the deal decides which liabilities move with it. (9 min)
• Appraising one business: verify the earnings before you price anything else — Seven checks on one specific listing, in an order that puts verifying the earnings ahead of everything the earnings are used to justify - because every other number in the deal is built on top of a figure the seller had every reason to shape. (13 min)

All 578 terms in the Investing glossary