Business brokerage
Business brokerage is helping someone buy or sell a going business: a restaurant, a dry cleaner, a small manufacturer. Many people are surprised that this falls under a real estate license in Florida. The answer is in the definitions section of Chapter 475.
Why a real estate licensee can sell a business
Two definitions in Fla. Stat. 475.01(1) bring businesses into the license law:
- "Broker," 475.01(1)(a). A broker is a person who, for another and for compensation or valuable consideration, does any of the listed acts (sells, buys, exchanges, rents, negotiates and so on) involving "business enterprises or business opportunities or any real property." The definition also covers anyone who takes part in procuring sellers, purchasers, lessors or lessees of business enterprises or business opportunities.
- "Real property" or "real estate," 475.01(1)(i). The term means any interest or estate in land and any interest in business enterprises or business opportunities, including any assignment, leasehold, subleasehold or mineral right.
The result: helping another person sell a business for a fee is a brokerage act, so the person needs a Florida real estate license, the same as for selling a house. A sales associate does this work under their broker, just as with any other transaction.
A note on the terms themselves
Chapter 475 does not give "business enterprise" or "business opportunity" a separate definition. The phrases appear inside the definitions of broker and real property. In plain English, a business enterprise is an operating business, and a business opportunity is the chance to acquire or take part in one. On the exam, the point to remember is that an interest in either one is treated as real property under 475.01(1)(i).
The same paragraph also lists what is not real property: a cemetery lot or right of burial, and the renting of a mobile home lot or recreational vehicle lot in certain parks.
What is actually being sold
A business sale is a bundle of different assets, not one thing. For federal tax purposes, the IRS generally treats each asset as sold separately.
| Tangible assets | Intangible assets |
|---|---|
| Inventory | Goodwill |
| Equipment, furniture and fixtures | Trade name and trademarks |
| Vehicles | Customer lists |
| Real estate, if the business owns it | Licenses, franchise rights, contracts |
| The lease, if the business rents its space |
Goodwill is the value of a business's reputation and customer loyalty, the expectation that customers will keep coming back. It is an intangible asset. It is usually measured as the amount a buyer pays above the fair market value of the business's identifiable assets. A restaurant whose equipment and inventory are worth $200,000 but which sells for $350,000 has $150,000 that buyers attribute to goodwill and other intangibles.
Many small businesses rent their space rather than own it. In those sales the buyer usually takes over the lease, and the licensee needs to know whether the landlord must approve an assignment.
Valuing a business
Licensees need to know the three broad approaches only at a concept level. The IRS's own business valuation guidelines name the same three and say all three should be considered.
| Approach | The idea | Real estate cousin |
|---|---|---|
| Asset-based | Add up what the business's assets are worth, less its liabilities | Cost approach |
| Market | Look at what comparable businesses have sold for | Sales comparison approach |
| Income | Value the business on its earning capacity, often by capitalizing its earnings or cash flow | Income approach |
A profitable business with strong goodwill is usually worth more than its assets alone, which is why the income approach often matters most for a healthy going concern. A business losing money may be worth little more than its equipment and inventory.
Practical cautions
Business sales raise issues that a home sale does not: confidentiality (employees and competitors should not learn the business is for sale), inventory counts at closing, bulk transfer of equipment, licenses that may not transfer, and complex tax allocation. Licensees should recommend that buyers and sellers get legal and accounting advice.