How Much Do Brokers Charge To Sell a Business?

In This Post I will explain how much brokers charge to sell a business in this article. Fees that brokers charge depend on the size and complexity of the business, as well as the broker’s level of experience.

Understanding these fees assists business owners selling their business in deciding if hiring a broker is the right decision.

What Is a Business Broker?

A business broker is a specialist in the buying and selling of businesses. They work for both sides of the transaction—the seller and the prospective buyer.

Their work includes, among others, valuating the business, advertising it for sale, finding a suitable buyer, negotiating the deal, and closing the transaction.

Brokers do complete the sale and also conduct due diligence, prepare all the legal documents, and deal with all other necessary compliance requirements.

They use their knowledge of the industry and their contacts and negotiation skills in order to get the best for their clients. For business proprietors who do not have the required knowledge or the time to oversee the sale process, business brokers come in handy.

How Much Do Brokers Charge To Sell a Business

Commission Fees:

Brokers’ fee structure is one of the most common arrangements where brokers take a certain percentage of the sale value, often in the region of 5% to 10%. While some brokers take a lower percentage, total fees for larger businesses still remain significant.

Flat Fees:

Less frequently charged, flat fees are set dollar amounts at a specific level and apply to smaller or less complicated business ventures. This can be anywhere from a few thousand to tens of thousands, depending on the business itself.

Retainers and Upfront Fees:

Some brokers are known to charge upfront fees which help with covering initial costs associated with marketing and evaluation. These can sometimes be as low as a few thousand but are often non-refundable and not subject to conditions.

Secondary Fees

Marketing Fees: These are incurred by brokers in performing advertising or listing the business.

Due Diligence and Legal Fees: Additional wages for employing legal aides from external audits might lead to other expenses.

Types of Fees Business Brokers Charge

Commission Based Fees

• Description: A broker’s fee as a percentage of the sale price of the business is brokred.
• Range: 5% to 10% is standard but may increase/decrease depending on the complexity and size of the business.
• Example: A broker earning 7% on a $1 million business will earn 70,000.

Flat Fees

• Description: A set price that a broker will charge for a sale irrespective of the sale price.
• When Used: Amortized to small businesses, or less complex sales.
• Example: Irrespective of the sale price, a broker might charge $10,000 for a business sale.

Retainer fees (Upfront Fees)

• Description: Paid before work commences. The payment is for work that will be done before the contract will start, touching on the broad scope of marketing, research and valuation of the business.
• Range: Could go from a few thousand dollars to tens of thousands, heavily relying on the broker, and the business.
• Example: A broker requesting $5,000 retainer fee at the start of the process.

Success Fees

• Description: A fee of this type is paid only when the sale has been consummated successfully.
• Range: This is usually a percentage of the sale price, similarly to fees which are commission based.
• Example: If a broker’s fee is 3% and the sale price is $500,000, then the broker will be paid $15,000.

Marketing Fees

• Description: This fee is incurred in regard to marketing for the business including advertisements as well as listing services and the creation of promotional materials.
• Range: This is also available as an extra fee, to which other fees hundreds if not thousands additional will be added depending on the amount of marketing utilized.
• Example: A broker might charge $3,000 to advertise the business at many promotional platforms.

Consulting or Advisory Fees

• Description: There are brokers with some minimum charges for consulting or giving advisory such as doing a business valuation and advising on how to improve the sale options with the business.
• Range: This can be charged per hour or a set fee for performing certain services.
• Example: A broker may offer consultation services at the rate of $200 to $500 an hour or provide a business valuation for a flat fee of $5,000.

Due Diligence Fees

• Description: The broker may charge additional fees if they assist with the due diligence, such as audits or reviewing the client’s financial statements.
• Range: Price ranges may differ based on the intricacy of the due diligence work and the level of involvement of the broker.
• Example: A broker can be charging up to 5,000 dollars for his assistance with due diligence works.

Are there any flat fees for selling a business?

Indeed, there are brokers that charge a flat fee for their services when selling a smaller business or dealing with a more straightforward transaction.

These fees are generally set amounts as opposed to percentages and can vary from a couple of thousand dollars to tens of thousands.

The fee considers the broker’s experience, how complex the business is, and the degree to which the business needs to be marketed.

Flat fees tend to be lower for smaller business, while more complicated or higher-value businesses tend to incur higher fees. It is crucial to ask the broker about the fee structure upfront to avoid any misunderstandings during the process.

Conclusion

To conclude, broker fees when selling a business differ considerably across the range of business dimensions such as size and industry.

Most brokers charge commission-based, flat-rate, or retainer fees. Gaining insights on the various fee structures and negotiating fees beforehand guarantees prompt discussions with the broker, thereby facilitating proactive processes for decision-making prior to selling the business.