Starting a Brokerage Is More Than Getting Licensed

Starting a business brokerage can look relatively simple from the outside. Get licensed. Form a company. Find a seller. List the business. Find a buyer.

In practice, there are multiple pieces that need to come together before an independent broker is prepared to represent a business owner through a transaction.

Before taking your first listing, you need to address licensing, training, valuation, legal documents, insurance, technology, marketing, lead generation, transaction processes and compliance.

Here are 13 things to have in place before taking that first listing.

Related: Starting a Business Brokerage vs. Buying a Business Brokerage Franchise: Which Is Right for You?

The Independent Business Brokerage Startup Checklist

1. Determine the Licensing Requirements in Your State

Business brokerage licensing requirements vary by state. In some states, a real estate license is required to sell businesses even when real property is not part of the transaction. In others, licensing requirements depend on whether real estate is involved.

You also need to determine whether you can operate independently or must work under a qualifying broker or broker-in-charge. A new real estate licensee generally cannot simply obtain a license and immediately open an independent brokerage.

If a license is required, factor in pre-licensing education, examinations, fingerprints, background checks, application requirements and any post-licensing or continuing education requirements.

In most states, you not only require licensing but a real estate firm holding your license must be licensed as well. Advertising and branding requirements are affected by the firm where your license is held. You don’t want to be Joe’s Business Brokers but required to advertise by law as Sarah’s House Sales. This is a critical point to understand before creating your brokerage brand.

Most importantly, determine the requirements before soliciting listings or performing brokerage activities. And remember: getting a real estate license does not mean you have been trained to sell businesses.

2. Get Business Brokerage Training

Business brokerage requires a different skill set from traditional real estate brokerage. A business broker needs to understand financial statements, confidentiality, valuation, buyer qualification, lending, purchase agreements, due diligence, leases, negotiations and closing procedures.

You also need to understand the entire lifecycle of a transaction. What happens after the buyer signs a confidentiality agreement? What financial information should be provided? How do you determine whether a buyer is actually qualified? What happens during due diligence? What role will the landlord play? How does financing affect the timeline?

Those are transaction skills, not simply sales skills.

Training may come from business brokerage associations, industry coursework, experienced mentors, attorneys, CPAs and other professionals who regularly work with business transactions.

Your first transaction should not be the first time you discover how a business transaction works.

3. Learn How to Value a Business

Determining value is one of the most important skills a business broker must develop. Unlike residential real estate, where comparable properties are a central part of pricing, business valuation often begins with the earnings generated by the business.

You need to understand concepts such as Seller's Discretionary Earnings, EBITDA, add-backs, earnings multiples, revenue multiples, comparable sales and asset values. You also need to recognize industry-specific factors that can affect value.

That requires more than knowing the terminology. A broker needs to be able to review tax returns and financial statements, determine which adjustments are supportable and explain how the asking price was developed. Franchises like We Sell Restaurants have specialized training programs leading to designation as a Certified Restaurant Broker which includes this important training.

You also need access to reliable comparable sales information and other valuation resources.

Ultimately, you need a valuation methodology capable of producing an opinion of value that can withstand seller expectations, buyer scrutiny and, when financing is involved, lender review.

4. Establish Your Business Entity

Before opening your brokerage, establish the appropriate business and financial infrastructure. Depending on your state and business structure, that may include:

• Forming the legal entity
• Registering a DBA or trade name
• Obtaining an EIN
• Completing state registrations
• Licensing the brokerage entity
• Establishing business banking
• Setting up accounting and tax systems

Think beyond simply opening a bank account. You will need to track commissions, marketing expenses, referral fees, brokerage expenses and taxes.

Establishing those systems before revenue begins flowing through the business is much easier than trying to reconstruct them later.

5. Obtain the Right Insurance

Do not assume a standard real estate Errors and Omissions policy automatically covers business brokerage. This is particularly important because many business sales involve the transfer of an operating business without the sale of real property. Confirm that your policy specifically covers the brokerage activities you intend to perform.

You should also evaluate whether your business needs general liability, cybersecurity and appropriate automobile coverage.

Cybersecurity deserves particular attention. Business brokers routinely handle tax returns, financial statements, personal financial information, buyer liquidity information and other confidential documents.

The key question isn't simply whether you have insurance. It's whether you have coverage for the activities and risks that actually exist in a business brokerage practice.

6. Develop Your Legal Documents

Your legal forms are a critical part of your brokerage infrastructure. At a minimum, you may need:

• Listing agreements
• Buyer confidentiality agreements
• Purchase agreements
• Amendments and transaction modification forms
• Referral agreements
• Co-brokerage and commission agreements
• Seller confidentiality documents
• Required disclosures

The listing agreement is particularly important because it establishes the relationship with the seller and the circumstances under which your commission is earned and paid.

Your confidentiality process is equally important. Sellers are entrusting you with information that could potentially affect employees, customers, vendors and competitors if the fact that the business is for sale becomes public.

Documents should be prepared or reviewed by qualified legal counsel familiar with business brokerage and the laws of the states where you operate. Downloading generic forms from the internet is not a substitute for establishing the appropriate legal infrastructure for your practice.

7. Establish Your Escrow and Closing Procedures

If your brokerage will hold escrow funds, understand the applicable requirements before accepting your first deposit.

State requirements may govern how accounts are established, how quickly funds must be deposited, record retention, reconciliation, receipts, interest and the circumstances under which funds can be released. Escrow is an area where poor procedures can create significant compliance problems, so establish the process before you need it.

You also need to determine how transactions will close. That means identifying an attorney, escrow agent, title company or other closing professional with experience handling the sale of operating businesses. Someone experienced only in residential real estate may not routinely handle the documents and issues involved in a business acquisition.

8. Create Your Brand

Your brand is more than a company name and logo. You need a domain, professional email, visual identity, positioning, photography, social media presence and appropriate marketing materials.

Professional presentation matters because of what you are asking a seller to entrust to you. For many owners, the business represents years or even decades of work and may be one of their largest financial assets.

Your brand therefore needs to answer a fundamental question: Why should a business owner trust your brokerage with the sale of one of their largest financial assets? Your positioning should begin answering that question before you ever meet the seller.

9. Build a Website Designed for Business Brokerage

A business brokerage website needs to do considerably more than describe your company. Depending on your model, it may need to support:

• Confidential listings
• Buyer registration
• Confidentiality agreements
• Listing inquiries
• Seller lead capture
• Valuation requests
• Listing search
• CRM integration
• Email marketing
• Analytics
• Secure document handling

The website also becomes one of the primary ways you build your buyer database. Security matters as well. You may be collecting financial information from sellers and personal and financial information from buyers. Determine where that information is stored, who has access to it and how it moves between your website and other systems.

10. Choose Your Technology Stack

Determine how you will manage buyers, sellers, listings, leads, documents and transactions. Your technology may include a CRM, buyer database, listing management, electronic signatures, document storage, transaction management, email marketing, reporting, automation and AI tools.

One of the challenges for a startup brokerage is that these systems are often purchased independently. That can result in multiple platforms that do not communicate with one another and duplicate data entry across the business.

Think about the workflow from the beginning. When a buyer inquires about a listing, where does that lead go? How is the confidentiality agreement handled? Where is the buyer information stored? How do you know which listings that buyer has reviewed?

Your systems should also allow you to measure results, including lead sources, marketing spend, conversion rates, cost per lead, cost per listing and ultimately cost per closing.

11. Determine Where Your Listings Will Be Marketed

Once you have listings, you need a distribution strategy. That may include your own website, business-for-sale marketplaces, email marketing, social media, direct buyer outreach and co-broker relationships.

Each marketplace may require its own account, listing format and ongoing updates. When the price or terms of a listing change, you need a process for keeping that information consistent everywhere it appears.

At the same time, you must maintain seller confidentiality. Selling a business isn't the same as advertising a house for sale. You need to generate exposure for the opportunity without revealing the identity of the business until appropriate confidentiality requirements have been met.

12. Build Your Buyer Database

A broker without buyers has limited value to a seller. An established brokerage may have spent years building a qualified buyer database. A new independent brokerage starts that process from the beginning.

Buyers can come from listing inquiries, website registrations, digital marketing, networking and previous inquiries. Over time, each interaction adds to the database. An established brand like We Sell Restaurants has a database of more than 125,000 buyers but that has taken more than two decades to develop.

But simply collecting names and email addresses isn't enough. Your CRM should help you understand each buyer's geographic preferences, industries of interest, price range, liquidity, experience, financing needs and acquisition timeline.

That information allows you to match buyers with opportunities rather than simply emailing every listing to every person in the database.

A buyer database becomes more valuable as the brokerage learns who those buyers are and what they can actually acquire.

13. Develop a Seller Lead Generation Plan

Without listings, your brokerage doesn't exist. Potential seller lead sources include:

• Direct prospecting
• Referral partners
• CPAs and attorneys
• Lenders
• Commercial real estate professionals
• Existing business owners
• Direct mail
• Email marketing
• SEO
• Paid digital advertising
• Social media
• Networking
• Database marketing

The challenge isn't simply trying different marketing tactics. It's determining which methods consistently produce qualified seller opportunities at an acceptable cost.

That takes experimentation. A campaign may work for a period of time and then lose effectiveness. Referral relationships take time to build. Digital advertising requires testing. Direct prospecting requires consistent execution.

New brokers also face a credibility challenge. You may be competing for a listing against brokers who can point to years of transactions and an established buyer database.

That makes measurement particularly important. Track where every lead originates, cost per lead, valuations generated, listing appointments, listings signed, closing ratios and transactions completed. Ultimately, you should know your cost per listing and cost per closing.

It's easy for a new broker to stay busy. Activity isn't the same as a lead-generation system.

Before You Take Your First Listing

If you can confidently check all 13 boxes, you have much of the basic infrastructure needed to begin building an independent business brokerage practice.

If several remain unanswered, those gaps belong in your startup plan, budget and timeline.

The true cost of starting a brokerage isn't simply forming an entity and obtaining a license. It includes building the knowledge, systems, technology, legal infrastructure, marketing and buyer network required to operate the business.

That leads to one final question:

How much of this do you want to build yourself?

See What You'd Be Building Yourself

Compare the systems, training, technology, marketing and resources included with a We Sell Restaurants franchise against what you would need to source, build and manage independently.

Download the Independent Business Brokerage Startup Checklist

Thinking about starting your own business brokerage? Download our free 13-point startup checklist to see what you already have in place, what still needs to be built and where there may be gaps in your startup plan.