Are You Paying Too Much for Your Business Broker? | Franchise Law Blog

Are You Paying Too Much for Your Business Broker?

The commission made by business brokers or investment bankers will probably be your greatest expense when selling your business.  For smaller transactions‚ the commissions generally range between 10 and 12 percent of the purchase price or some other fixed number agreed to by you and the business broker.  For example‚ if your business is sold for $500‚000.00‚ the broker’s commission would be in the range of $50‚000.00 to $60‚000.00.  Sometimes the business broker will agree to a fixed number in lieu of a percentage.  For larger transactions‚ the business broker’s/investment banker’s commission will be based on a tiered basis.  

Make Sure the Commission Structure is Understood and Discussed

In most instances‚ your first contact once you decide to sell your business will be to the business broker or investment banker.  Many business sellers fall into the trap of failing to discuss the commission structure for the deal‚ which can be a critical error and lead to litigation down the road.  Do not assume anything.  Everything you and the business broker discuss and agree to must be put into a written agreement and signed.  Because the broker’s commission is a substantial cost‚ you should read the agreement carefully before signing.  You may even want to have your attorney review it before you sign.  Although most business brokers that you will deal with are reputable‚ there are some that cannot be trusted.

Are You Paying Too Much For Your Business Broker? 

Well‚ I guess it depends on what you are getting.  If you are paying something in the range of 10 and 12 percent‚ you are paying the standard commission for business brokers.  If you are paying less‚ you just want to be certain that the commission is attractive enough to the broker that they will make their best efforts to sell the business.  Business brokers are business people too and typically will work harder on deals that will yield the highest return for them.  In certain situations‚ the business broker will render additional services or have a particular skill which will ultimately increase the benefit to you and an increased commission will be required.  It is hard to gauge the value you will get from your business broker unless you have tried to sell your business or another business before.  It is not easy and I find that more often than not‚ the business broker’s commission is earned‚ meaning that the business seller benefited more from their services than the commission paid.  From my point of view‚ the services of a business broker cannot be replaced when selling your business and the return on investment far exceeds the cost.  

For more information on dealing with business brokers and other important information about the process of selling your business‚ you can order a complimentary copy of ENDWISE the guide to selling your business with peace of mind (below).   

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Date: 01/28/2014 | Category: Business Transactions

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