The Role of Transfer Agents
Whether you are buying or selling a business, one term with which you will no doubt become intimately familiar is “transfer agent.” In fact, if you have been researching business sales or purchasing opportunities for any length of time, this term has, more likely than not, appeared throughout your research results. But what exactly is a transfer agent? What is his/her role in the sales or purchasing process? And what criteria should you utilize in choosing a transfer agent? For the answers to these questions and more, read on.
Put simply, transfer agents, also sometimes called commercial estate agents, are individuals who assist in the process of buying and/or selling a business. Their purpose is to negotiate on behalf of their clients to arrive at the best possible price for the sale or purchase of a business. Effective transfer agents possess an intimate knowledge of the workings of the business market and are well-versed not only in national sales/purchases but also in international sales/purchases.
While this is the general role of transfer agents, their specific roles will vary a bit depending on whether they are working on behalf of a buyer or on behalf of a seller.
Types of Transfer Agents
Buyers’ Agents
A transfer agent working on behalf of a buyer will serve as the intermediary between the buyer and the seller. For the buyer, the agent will handle all price negotiations; paperwork; correspondence, including the actual transfer of the business, and financing accessibility. The agent will research the assets and financial history of the business in question and will also often be equipped to understand and handle the myriad legal considerations inherent in purchasing a business.
Sellers’ Agents
A transfer agent working on behalf of the seller will, similarly, handle all correspondence with potential buyers. Additionally, the seller’s agent takes charge of marketing responsibilities for the business, including seeking out potential buyers. Sellers’ agents will also make the initial price determination at which the business should be listed. To do this, the seller’s agent will take into consideration such factors as asset valuation, business accounts, and stock history.
Costs of Transfer Agents
Naturally, buying a business can be a costly endeavor, and even business sellers find themselves facing numerous financial considerations. What, then, is the cost of a transfer agent?
Similar to residential real estate agents, business transfer agents work on commission, meaning that their earnings are calculated as a percentage of the final sale price of the business. For sellers, this is a definite benefit, as agents will be driven to negotiate the most lucrative price for the business. For buyers, this is a factor to keep in consideration, and buyers would do well to perform their own market research as a supplement to the agent’s research to ensure that the pricing determined by the agent is comparable to current market levels.
In addition to the agent’s commission, both buyers and sellers face certain additional costs of which they should be well aware before venturing into the transaction.
These costs may include the following:
- Accounting fees Tax fees and liabilities
- Stocktaker fees if applicable (A stocktaker is an individual hired to take company inventory.)
- Legal fees
- Rental fees if the business is located on rental property
While the final tally of these additional fees and costs may vary greatly, it is important that the buyer’s or seller’s budget allow for their inclusion.
Selecting a Transfer Agent
With the transfer agent holding significant responsibility and requesting a high level of trust from the buyer/seller, it is critical that buyers and sellers ensure that they choose their transfer agents carefully. What qualifications, then, should buyers and sellers seek in a transfer agent? Although there are no legal regulations mandating specific qualifications, following are several that should be taken into account.
Accreditation
The first thing to look for in selecting a transfer agent is whether he or she is accredited by the National Association of Estate Agents (NAEA). This organization was founded in 1962 and today boasts 10,000 members. Its stated aim is “upholding good practice and high professional standards in UK estate agency.” As such, members of the NAEA must meet certain criteria, including the following:
For associate level
Hold the NAEA Technical Award
For membership level
Hold the NAEA Technical Award Be more than 21 years of age Have 3 years of experience
For fellowship level
Hold the NAEA Certificate in Commercial and Business Transfer Agency Be more than 25 years of age Have at least 5 years of experience
For all levels
Complete 12 hours annually of Continuing Professional Development Adhere to the NAEA’s Code of Practice and Rules of Conduct
Experience
Once you are certain that the agents you are considering have the NAEA’s stamp of approval, be sure to research their past experience in completing business transactions similar to yours. For example, an agent may have significant successful experience in buying or selling retail businesses, but if your business is a service business, does this same agent have the expertise to complete the transaction to your satisfaction?
Pricing
Agents set their pricing structures based upon a variety of factors. Never assume that one particular agent’s prices will be similar to another agent’s. Always ask ahead of time what the commission percentage will be, what additional costs will be involved, and how the agent determines prices.
Even with the many factors to be considered, working with a transfer agent can greatly reduce the burden of stress on both buyers and sellers. With a bit of research and inquiry, buyers and sellers can select the agent who not only will best suit their pocketbooks but also will be able successfully to “close the deal” on their sale or purchase.
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