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An investment banker with FINRA Broker-Dealer, may collect advisory fees (upfront retainer). Business brokers, at least in California, are regulated by the Department of Real Estate, which does not allow them to be paid in advance of a successful transaction.

Advisory fees cover a defined scope of services, resulting in an initial "book" or confidential information memorandum (CIM). The client receives valuable due diligence from the investment bank, including at least the following:

  • thorough critique of the business plan
  • reasonable cash flow projections and working capital assessment
  • proper emphasis on value drivers, such as IP
  • streamlined list of best potential investors/buyers
  • fully vetted adjusted EBITDA
  • analysis of reasonable range of buyer multiple
  • valuation expectation for a capital raise

For small deals under $3 million in sales, the business broker is usually more appropriate than the investment banker (IB). And because there is no advisory fee, minimal diligence is performed. The client is usually just listed on local and national websites catering to buyers and sellers. On the other hand, the IB produces substantial "value" for the client, based on the aforementioned due diligence services. The IB usually leads the process, coordinating closely with legal, accounting, and other key advisors. And, the connections and discussions with investors/buyers are extensive and critical to securing the optimum price and terms.