Size Matters: When to Use a Business Broker or an Investment Banker

Choosing an advisor to sell your business can be somewhat unclear, especially considering the loose categorizations people toss about. Understanding the differences between business brokers and investment bankers will help you make an informed decision when choosing an advisor to sell your business. 

Most business owners consult with a small group of professionals on a regular basis (accountants, attorneys, etc.). But, very few have a relationship with a professional that can assist with a business sale. In general, depending on the size of your business, you need to turn to a business broker or an investment banker. Business brokers typically assist smaller businesses in the sale process. Oftentimes, these sales are made to other individuals.

Investment bankers work with medium to very large businesses, and those sales are generally made to other companies (strategic buyers) or private equity groups (financial buyers).

Let’s define what small and a medium businesses look like:

Small business – revenue of less than $10 million and cash flow (or EBITDA) of less than $2 million.

Medium business – revenue of $10 million to $100 million with cash flow/EBITDA between $2 million and $40 million.

Why Does it Matter?

It is important to choose the right type of advisor because each type of group has a different Rolodex of contacts. A business broker generally keeps tabs of wealthy individuals that are looking to buy a business. An investment banker keeps contacts of private equity groups and generally has industry-specific knowledge about the key strategic buyers in a particular market. Finding appropriate buyers is one of the most important services a mergers and acquisitions professional can provide to a business seller, so it is very important that your advisor has the right contacts for your business.

Private equity groups and strategic buyers will sometimes do very small transactions, but generally, they like to buy larger businesses. It takes as much work to complete a $15 million transaction as it does a $1 million transaction, and professional investment firms like to put as much money to work as possible at one time.

When you are ready to sell your business, it is critical to choose the right type of advisor. The right advisor will have access to the types of buyers that are best for your business.