As the young entrepreneur continues to progress through their business career, it’s almost a guarantee that they will encounter either brokers and/or finders along the way.
Knowing the difference between the two could really help you during your decision making process and allow you the opportunity to know what type of deals you may be entering into.
For starters a broker typically acts as an agent on the behalf of a larger entity while a finder is truly representing themselves.
Brokers are much more involved in the deal making process or the sale of a product or service compared to finders. Brokers are usually responsible for gathering documents, negotiating terms of the agreement and ultimately closing the deal.
Brokers act as middlemen during the deal making process, going back and forth between the two parties. This is what makes brokers fairly scary, because you never know whose interest they truly have at heart.
Unfortunately a lot of brokers have their own interest in mind over yours and the company your negotiating with, and if this isn’t the case, then they are more concerned with the larger entity than you; simply because they will be able to make future profits and earning with this company and the company is the one who ultimately signs their check!
Now a finder typically will create a relationship with a large entity to find particular deals for them. These finders go out and market a product or service, find interested customers or clients and simply introduce them to this company.
Once finders have put the potential client into contact with the company, then their work is done and they simply sit back and pray that the deal ultimately closes. If and when the deal closes the finder is paid a pre-determined fee from the company’s earnings and that’s the end of the transaction.
This is a very important difference to understand between finders and brokers, many brokers are paid according to a fee that they are able to work and negotiate into the deal. This means that the broker tries to inflate fees in order to get paid off the “left over” amount.
For instance say a cash flow purchaser wants to buy $100,000 of your company’s receivables for a large lump sum of $75,000. The company will tell the broker the amount that they plan to purchase your receivables for, then the broker will come to you and try to negotiate a purchase for say $60,000.
Keep in mind the company is having no direct contact with you, so you don’t know they are willing to actually pay you $75,000, so the broker will walk away with a $15,000 commission from this deal if it closes, $15,000 which could have been in your pocket!
However not all brokers are paid in this manner, in fact many are paid a percentage of the brokerage amount by the firm they represent, say for instance 1% of the mortgage funding amount.
At any rate there is nothing wrong with working with brokers or finders, I’ve worked as and continue to broker and find deals for companies until this day, so I’ve experienced many aspects within this area of business personally.
However it is imperative to understand what type of deals you are entering into and who you’re dealing with at all times.
Try to understand the contract as much as possible and always at the least attempt to make direct contact with firms when trying to negotiate a deal, simply because the fewer individuals that are in the equation, the less opportunities there are for conflicts and screw-ups.
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