You have worked long and hard to build up your business, and now you are thinking of retiring. How should you go about selling your business, and what types of fees can you expect to pay? Some Mergers & Acquisitions firms and Business Brokers charge an upfront fee or a retainer fee, and some only charge a fee when a business is sold.
There are different theories on the advantages of each type of fee structure. What is the best kind of fee structure for business brokers or M&A firms? How do we approach the fees associated with business brokerage?
Table of Contents:
- How Much Does It Cost To Sell A Business?
- How Much Does A Business Broker Charge To Sell A Business?
- Standard Business Broker Fees
- Upfront Fees Vs. Post Sale Fee From Business Brokers
- The Cost For A Business Broker Depends On Their Business Structure
- Why Synergy Business Brokers Does Not Charge An Upfront Fee To Sell Your Company
- Fees For An M&A Firm Vs. A Business Broker
- The Cost Of Marketing The Sale Of Your Business
- Closing The Sale Of Your Business & Paying The Fees
How Much Does It Cost To Sell A Business?
It can cost from next to nothing to sell your business all the way up to 15% of the sale of your business. If you manage to sell your business without hiring a business broker, you only have certain fees and payments for the transaction. Generally, selling your business on your own results in losing more money than it would have cost to hire a business broker. This is because selling your business on your own usually results in a lower sale price.
Since it is also tough to effectively sell your business without a business broker, you will probably end up paying a business brokerage fee to sell your business once selling it on your own fails. How much it costs to sell a company is dependent on how you sell your company. A business broker’s fees for selling your company can vary, just as the cost to sell a business through an M&A firm will vary.
How Much Does A Business Broker Charge To Sell A Business?
Business brokerage fees vary widely. Some business brokers will help sell any business that approaches them, and they typically have an upfront fee or are new to the industry. Other brokers will only sell specific companies. The size of your business and the type of broker will determine the cost of selling your business. Typical business broker commission and fees are anywhere from 5% to 15% of your business’s sale price.
The average business broker commission is around 10%. That is the general fee average for a business broker. Since the fees for a broker are similar, there are other factors beyond cost that you should consider. When you pay that fee and how you pay that fee depends on the business broker.
Business broker fees vary based on the work being done, the types of businesses that a business broker sells, and the level of marketing a business broker performs to sell your business. The fee for a business broker covers the cost of a wide variety of things in addition to the broker’s hard work and services.
Standard Business Broker Fees
The business broker fee structure can vary depending on the broker. Some disclose business broker fees within the initial steps of the selling process. However, that doesn’t mean you owe those fees immediately — many brokers use this as an opportunity to inform you before the process.
Whoever you work with will often take a percentage as business broker commission. Typically, you will negotiate this price before listing your business for sale and pay it after closing. Other fees brokers may charge include:
- Retainers: This can either be an upfront charge or a monthly payment.
- Valuations: This is a fee for completing a business valuation.
The broker fee for selling a business can vary depending on your business’ size and revenue. To determine where your business would fall, look at the three size categories:
- Main street: These are the smallest companies a broker will take on. These businesses have revenue of less than $1 million and there are generally no upfront or retainer fees.
- Lower middle market: The companies in this category have between $1 million and $25 million in revenue. You may see retainer and minimum commission fees — some brokers calculate a fee based on the Double Lehman Scale.
- Middle market: A middle-market business earns over $25 million in revenue. An M&A firm or investment bank will handle these transactions. There are often retainers and flat fees.
The seller is responsible for paying the broker fees, so have an honest conversation with your broker about future costs. This way, both parties know the payment expectations. Learning about the different types of upfront and post-sale fees from business brokers will help you determine what is best for your situation.
Upfront Fees Vs. Post Sale Fee From Business Brokers
While there are many approaches that business brokers have to charge for their services, the two primary routes are an upfront fee and a post-sale fee. Some business brokerage firms charge an upfront fee and an additional fee when the business is sold. Other business brokers will only charge a fee once your business is sold.
There are different reasons for these approaches, and some are designed to benefit you, and others are designed to benefit the broker. While fees for services rendered make sense, let’s look at the motivation between different business brokerage practices fees and mergers and acquisitions fees.
Should I pay an upfront fee for selling my business?
From the view of the firm selling your business, an advisor would prefer to have an upfront fee. This signals that you are serious about selling your company, and it helps them pay for marketing costs and the time invested in selling your business.
But as a business owner, do you want to invest in paying a fee to a firm that requires an upfront fee to justify spending time and money on marketing your business. A brokerage firm with a consistent track record of selling businesses with a commission paid at the closing should be able to cover the costs of their marketing and time invested in selling a business.
Furthermore, if Brokers are only paid a commission when a business is sold, they are more likely to only take on assignments when they feel confident that they can sell your business. If you are being asked to pay an upfront fee, you don’t know if the advisors are more interested in taking the assignment to get the upfront fee or whether they feel confident that they can sell your business.
Upfront business broker fees can vary from $5,000 to $50,000 or more, so this can be a significant incentive for someone to take on a new assignment even if they aren’t confident that they can sell it.
In the case where a business broker has already received payment for their services, your business may not get the attention that it deserves. This can lead to a stressful situation when selling your business. Not that all business brokers with an upfront fee function this way, but the incentives leave room for poor service.
Benefits Of Paying A Broker After Your Business Is Sold
If you are only paying a fee when a business is sold, then the goal of selling your business will be aligned with the Business Broker or M&A firm’s goals of getting paid when the business is sold. The interesting part is that upfront fees are more often charged by firms handling the sale of larger companies.
More substantial potential commissions should justify investing time and advertising dollars to get a larger commission. But just the opposite appears to be true: Business Brokerage firms that handle smaller deals do not charge an upfront fee, and M&A firms that handle larger transactions usually charge an upfront fee. But it doesn’t have to be this way.
The Cost For A Business Broker Depends On Their Business Structure
Some business brokers will accept any business looking to be sold. These business brokers often have an upfront fee. That fee pays for the work it takes to list your business and the advertising costs of listing a business for sale. If the upfront fee is large, it will also pay for the paperwork and transaction time cost once your business sells.
If a business broker does not charge an upfront fee, you’ll find the business broker will be more hands-on with knowing your business and selling it. Why? A business broker that doesn’t charge an upfront fee will only profit once they sell your business. This results in motivation to sell your business. A broker representing your business will also want to make sure your business is worth selling.
Why Synergy Business Brokers Does Not Charge An Upfront Fee To Sell Your Company
Synergy Business Brokers does not charge an upfront fee. We do this because we want to be motivated to sell your business, and we feel strongly that we shouldn’t be paid if we aren’t successful. We have a qualification process for both buyers and sellers to make sure we want to invest time in a sale process.
Not having an upfront fee and qualifying buyers and sellers results in both parties being happy with the purchase of the business and us, the business brokers, being satisfied with doing good work and making a commission on the sale. Learn more about business brokers and M&A Firms or our fees and selling process below.
Fees For An M&A Firm Vs. A Business Broker
Business Brokerage firms typically handle deals that are less than $1Million, and most don’t charge upfront fees. M&A firms handle transactions that are often $5Million to $500Million or more. In the middle are firms that handle deals of $700,000 to $70Million+. In this middle range, there are Business Brokerage firms and also M&A firms. M&A firms typically charge upfront fees, and Business Brokerage firms usually do not charge upfront fees.
So what is the difference between an M&A firm and a Business Brokerage firm? Often there isn’t much difference except that a firm can call themselves either an M&A firm or a Business Brokerage firm depending on their preference.
Both firms will speak with the owner and gather information about your business. This will include information on your employees, customers, financial information, and your business’s unique benefits and challenges. Then they will give you a recommendation on a potential selling price. You can read more at M&A Firms vs. Business Brokers.
Typical commissions for selling a business are 10% of the sale price for companies priced at $1Million or less. For Businesses priced over this amount, there’s often a sliding scale with a lower percentage for larger deals.
The Cost Of Marketing the Sale Of Your Business
Why is there a cost for selling a company? Because there is a high cost to market the sale of your company. Business Brokers will usually advertise the confidential overview document on the internet and will have potential buyers contact them from the ads.
Prospective buyers will typically be from three different types of buyers:
- Individual buyers.
- Private Equity investors.
- Company owners that are in the same or similar business and looking to expand.
Both M&A firms and Business Brokerage firms will tend to get the same type of buyers but will go about it somewhat differently. This is why the cost of marketing the sale of your business can be different between business brokers and mergers and acquisition firms.
There are generally three different types of ways to market a business for sale:
- Proactively assembling a list of potential buyers that will be contacted.
- Advertising the overview document on the internet
- Contacting potential buyers that are already in the Broker or M&A firm’s database.
M&A firms usually use 1 and 3. Business Brokers usually use 2 and possibly 1 and 3. Our recommendation would be to hire a Business Brokerage or M&A firm that will use all three methods of getting potential buyers.
Closing The Sale Of Your Business & Paying The Fees
Once the deal is closed, you will pay the fee for the services provided. This fee will be based on the sale of your business.
Synergy Business Brokers provides the level of service of an M&A firm without the upfront fee. We feel that having a fee based only on performance aligns our goals with our client’s goals. And while no firm can guarantee that they will sell all of their client’s businesses, the fact that we don’t charge an upfront fee allows us to focus only on handling clients whose price expectations we think we can meet. You can hear from our customers at Testimonials & Reviews and our Corporate Video.
We sell businesses with annual revenues of $700,000 to $70Million throughout the US. We have experience selling businesses in manufacturing, software, distribution, construction, healthcare, services, technology, engineering and transportation.
For a confidential consultation to determine if we can help you achieve your goals, please fill out our form on our Seller Registration page or email us at [email protected]. One of our M&A Brokers will follow up with you.