You have worked long and hard to build up your business, and now you are thinking of retiring. The question is, 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 and/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?
How Much Will It Cost To Sell My Business?
It can cost 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. Typically this route results in losing more money than it would have cost to hire a business broker, based on a lower sale price. Since it is also very difficult to effectively sell your business without a business broker, you will often end up paying a business brokerage fee to sell your business.
What Does A Business Broker Charge?
Business brokerage fees vary widely. Some business brokers will help sell any business that approaches them, and they typically have an upfront fee. Other brokers will only sell specific businesses. The size of your business and the type of broker will determine the cost of selling your business. Depending on their fees, you could end up paying them anywhere from 5% to 15% of your business’s sale price. The average fee for a business broker is around 10% commission. 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 as well as 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.
Upfront Fees Vs. Post Sale Fee From Business Brokers
While there is a wide variety of approaches 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 then 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 as well as mergers and acquisitions fees.
Should I pay an upfront fee for selling my business?
From the point of 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 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.
Since 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 your goals 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. It would seem that more substantial potential commissions would justify an investment in 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.
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 normally have an upfront fee. That fee pays for the work it takes to list your business and the advertising costs associated with listing a business for sale. If the upfront fee is large, then it will also pay for the cost of the paperwork and transaction time 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
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. This 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.
Business Brokerage firm or M&A firm
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 $1Billion or more. In the middle are firms that handle deals of $700,000 to $40Million+. 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.
If you agree to hire them, the M&A firm will typically require an upfront fee and a commission if the business is sold. The Business Brokerage firm will only require a fee if the company gets sold. 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.
After choosing a firm to represent you, the next part of the process is to develop a document that will be used to market your business. This is usually a document that provides enough information to get people interested in your business but not enough information so that potential buyers can guess what business is for sale. This document is usually a page or so. Maintaining confidentially is essential because business owners typically don’t want their employees, customers, and competitors to know that their business is for sale. Both M&A firms and Business Brokers will work in such a way as to protect confidentiality.
A second document will then be developed, which is provided to potential buyers after they sign a confidentiality agreement. This document is more detailed in scope. Business Brokerage firms typically create a document that is a couple of pages or more and provides an overview of the business and answers to common questions about the company. This is also provided with financial information about the business. M&A firms often develop a document that can be 40 to 60 pages. These documents are often called Books. And the justification of some M&A firms to charge an upfront fee is that it costs a lot of money to develop books.
However, many sellers will remark that I’m not selling a book, I’m selling a business, and most buyers are usually too busy to read 60 pages. Many of these pages are boilerplate pages that are copied and pasted about a particular industry that the business is in and things of this nature that can be found on the internet.
The Cost Of Marketing the Sale Of Your Business
How do M&A firms differ from Business Brokerage firms in marketing the firm to potential buyers?
M&A firms will usually develop a list of potential buyers in the same or similar industry and private equity investment groups. Then they will send the short 1-2 page overview document (sometimes called a teaser) to this list of potential buyers. They will also send the overview document to a list of potential buyers that they have built up over the years.
Business Brokers will usually advertise the confidential overview document on the internet and will have potential buyers contact them from the ads. These prospective buyers will typically be from three different types of buyers: 1. Individual buyers. 2. Private Equity investors. 3. Company owners that are in the same or similar business and looking to expand.
So both M&A firms and Business Brokerage firms will tend to get the same type of buyers but will go about it somewhat differently. Our recommendation would be to hire a Business Brokerage or M&A firm that will use all three methods of getting potential buyers. 1. Proactively assembling a list of potential buyers that will be contacted. 2. Advertising the overview document on the internet, and 3. Contacting potential buyers that are already in the Broker or M&A firm’s database.
Finding Qualified Buyers For Your Business
Business Brokerage firms and M&A firms should qualify potential buyers before releasing confidential information. The qualifications should include the buyer’s financial capabilities as well as who the potential buyer is. The buyer may have the money, but they may not have the background or interest to run the particular business they are considering.
On the other hand, the buyer might have the perfect background and interest, but if he doesn’t have the financial qualifications, then, of course, you don’t waste time with someone unqualified. Then there are the buyers that are in the middle where they might qualify to purchase a business, or they might not.
You want a Broker or Advisor that has contacts with Banks to determine whether a specific buyer can qualify for a loan to purchase a business. An experienced banker can analyze a person’s credit and the company’s financial information to determine whether someone will qualify.
Closing The Sale Of Your Business
After getting qualified buyers interested, the next step is to answer any questions and then solicit offers. Multiple offers give you the most leverage to negotiate the best deal. Once an offer is agreed to, then further due diligence is done, and a purchase and sale agreement is signed, and the deal is closed.
Synergy Business Brokers provides the level service of an M&A firm without the upfront fee. You can read more at: What are the differences between M&A firms and Business Brokers. We feel that having a fee based only on performance aligns our goals with the goals of our clients. 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 that we think we can help to achieve their goals. You can hear from our customers at Testimonials & Reviews and our Corporate Video.
We sell businesses with annual revenues of $700,000 to $70Million in NY, NJ, CT, MA, PA, MD, TX, NH, LA, OH, VA, DC, and 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 at Seller Registration or email us at [email protected]. One of our M&A Brokers will follow up with you.