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Are Business Brokers Licensed? #

Most people are unaware that there is no license to be a business broker. Yes, you heard me – there is no business broker license. A few states, like Illinois, offer a business broker license – which only requires filling out an application and paying a fee – much like a business operation or privilege license. Other than the state of Nevada, which requires an individual to take a 27-hour business brokerage class through one of the real estate schools to become a business broker, no other state requires specific training to become a business broker.

Since starting my business brokerage career in 1995, I have found it unfortunate that specific training and licensing are not required to offer business brokerage services. Often, 70% or more of a person’s net worth is directly tied to their business – no matter how small or large the business. And, when it comes to exiting and selling their business, they could have someone with no training and limited experience representing them. Over the years, I have tried to have an impact on supporting the establishment of licensing and training for business brokers at the state level. Unfortunately, as they say – “follow the money.” There are so few individuals offering business brokerage services. The funds required to create state laws requiring training, successful examination completion, experience requirements, ongoing oversight, and regulatory compliance exceed the state funds and resources available.

No state licensing authority has required individuals offering childcare business brokerage to take specific training about selling a childcare business, ensured they were component through testing, nor required any experience selling childcare businesses. So, as a childcare business owner, it is important for you to understand since there is no “business broker license,” it is up to you to determine if an individual is qualified to represent you in the sale of your childcare business.

See answers to other FAQs that provide guidance on qualifying and selecting a childcare business broker.

What About Business Brokers and RE Licenses? #

Although there is no  “business broker license,” all states require individuals representing others in the selling or leasing of real property to have a real estate license. Almost all businesses, other than very small home-based businesses and some completely online businesses, operate out of leased or owned real estate. Some states clearly indicate that business brokers must have a RE license in their state RE licensing laws. However, some states’ RE licensing law is unclear on the requirement for business brokers to hold a real estate license. Therefore, it is common to find individuals offering business brokerage services who are not licensed as a real estate broker.

I have been a licensed RE broker since the 80s and hold an RE license for each state where I sell childcare businesses. To obtain and maintain each of these state RE licenses, I have spent hundreds of hours in RE licensing courses. None of these courses covered any content about selling businesses – nothing – not a thing. All state RE licensing commissions make it clear – when an individual completes the required training, passes the exam, and is awarded a RE license, they are deemed competent to practice residential real estate – selling homes. RE brokers are encouraged to obtain specific training to sell commercial real estate, industrial real estate, farms, and land, or anything other than selling residential real estate – homes. Because the required training to obtain a RE license did not include training in these specialized areas.

Now, most folks are not inclined to spend time and money obtaining a license unless they think it is required by law. Those same folks who avoid getting a RE license also rarely spend any time or money on business brokerage training courses, certifications, or other coursework that would increase their knowledge of business operations, financial management, business valuation, commercial real estate valuation, and other things that could greatly aid in their ability to advise and represent business owners.

What About Business Broker Training and Certifications #

As discussed in the Licensing section above, most state RE licensing training focuses on selling houses – residential real estate.  The selling of homes is complex enough to require extensive training. Most individuals who obtain an RE license do so to work with individuals looking to buy or sell a home. Only a small percentage of RE brokers sell anything other than residential properties.

Although they do not have any training in selling businesses, some residential RE brokers also occasionally sell businesses. This is more common in small towns and rural areas where it can be common for RE brokers to list and sell all sorts of properties. However, without some training in selling businesses, the residential RE broker may lack the knowledge and skill necessary to accurately value a business and represent a business owner in the sale of their business.

Some commercial RE brokers have obtained extensive, specialized training and certification in selling and leasing commercial properties. However, it is also common to find residential RE Brokers selling and leasing commercial properties without having obtained any training in commercial real estate.

Well-trained and experienced commercial RE brokers may have the skills and knowledge to provide some assistance with the sale or lease of a childcare building. However, they often do not know childcare business operations, how childcare businesses are valued, how to protect confidentiality, how to obtain financing for both the real property and business nor how to determine if a buyer is qualified to purchase and operate a childcare business.

As with residential RE brokers in small towns and rural areas, it is common to find commercial RE brokers also selling businesses. Some have obtained training in business brokerage, and some have not. As the cost associated with childcare buildings and land has increased, more commercial RE brokers have started trying to list and sell childcare buildings and land. They will often tell you that their primary focus is having the opportunity to sell or lease the real property and only list the childcare business to get the RE listing.

What is the Difference Between General Business Brokers and Child Care Business Brokers? #

General Business Brokers #

Business brokers that list and sell all types of businesses are practicing general business brokerage. General business brokerage is the most common way new business brokers start their career, and it is how I got started in 1995.

Most general business brokers list small to medium-sized businesses, often in a smaller, more local area. Depending on the area population, some general business brokers do not need to go outside of about an hour of their office or home base to find enough businesses to list and sell.

Successful general business brokers who enjoy a long-term career do so because they develop the skill sets to determine which businesses are worth listing, at what price, and which types of businesses create the most buyer interest.

General business brokers often do not have in-depth knowledge of any particular type of business. They are mainly focused on listing good, solid, saleable businesses. And only spend their time with serious, qualified buyers.

Brokers that practice general business brokerage can be a good option for childcare owners seeking to sell a small or medium-sized business under 75 licensed capacity. The local general business brokerage firm will be more likely to have individual buyers looking to purchase a small or medium-sized childcare business. The general business broker may not know much about childcare businesses, so an owner may need to help them learn what they need to know about the childcare industry to sell the business.

Most business brokers specializing in childcare often only list large centers; some only list and sell multi-unit operations. Should you own a small or medium childcare business, your best bet is to meet with several local business brokers, determine their experience and knowledge in selling businesses, and select the one you feel most comfortable with. If your childcare business is large – say licensed for more than 75 or the ability to be expanded, working with a business broker that specializes in childcare is your best option.

Brokers specializing in childcare will have the knowledge and skills to accurately analyze and value your business. Brokers specializing in childcare businesses will also have a database of individual and corporate buyers looking for centers like yours. Since general business brokers work across multiple industries and businesses, they rarely know the buyers looking to purchase larger childcare businesses. They may know a few, but the business broker specializing in childcare databases will contain hundreds of buyers, not just a few. The broker specializing in childcare will also have the market knowledge and expertise to help you obtain the highest value/best offers for your childcare business.

Childcare Specialty Business Brokers #

Over time, business brokers specializing in childcare have gained the experience and knowledge necessary to help owners of particularly large and multi-unit childcare businesses.

As I write this article, I celebrate my 28th year as a childcare business broker. During those years, I have worked with hundreds of childcare business owners across multiple states. Selling a childcare business requires extensive knowledge of the industry, each state’s licensing requirements, program operations, financial management, knowledge of the special use real estate associated with a childcare business, and numerous other things. This knowledge is only gained through the full-time specialization of selling childcare businesses for many years. Business brokers that list and sell all types of businesses will rarely have the level of childcare industry-specific knowledge required to provide you with the best representation.

If the business buyer knows more about the childcare businesses than the business broker representing you, guess who loses? That is correct – you!  To ensure you receive the highest value for your childcare business and increase your chances of a successful transaction, select a business broker that specializes in child care – not a business broker that lists and sells all types of businesses, not a commercial real estate agent that may understand real estate but has little knowledge about a childcare business, not a residential real estate broker that sells houses, and not any other individual or advisor whose primary business or service offering is anything other than selling childcare businesses – fulltime.

How Are Child Care Business Brokers Paid? #

Most childcare business brokers are hired by the childcare owner to represent them in selling their childcare business. The seller most often compensates the childcare business broker at the closing of the sale of the business.

Each childcare business brokerage firm sets its commission or compensation fee amounts. The fee often depends on the size of the transaction. For example, a business brokerage firm may charge a larger percentage of the sale price (total transaction value) for the sale of smaller childcare businesses with lower selling prices. And it is common for the brokerage firm also to have a minimum fee – particularly for smaller childcare businesses. Unfortunately, the childcare business broker can take far more time and work to sell a small to medium-sized childcare business. This is because individual buyers most often purchase small and medium-sized childcare businesses. When working with individual buyers (not corporate buyers), the childcare business broker often must provide more assistance to the experienced buyer, including more time answering questions, explaining the process, helping the buyer obtain financing, etc. The childcare business broker could often sell a larger childcare business to a corporate buyer with less time involved and earn a higher commission. The brokerage fee may seem very high for small- to medium-sized childcare business owners. However, it is important to understand the value of the childcare business broker’s time, the experience and expertise they provide, and the ability for you as a childcare business owner to have the assistance of an expert and the increased likelihood of a successful sale of your child care business.

The fee or commission structure for the sale of large childcare businesses or multi-location childcare businesses will often be calculated using what is referred to as the Double Lehman Formula, with larger transactions resulting in a lower overall percentage commission.

The Double Lehman formula is as follows:

• 10% of the first million dollars of transaction value plus
• 8% of the second million plus
• 6% of the third million plus
• 4% of the fourth million plus
• 2% of everything after that

What About Co-Broker? #

As covered in “Selling a Child Care Business and Co-Brokerage,” Co-brokerage is not common in selling businesses.