Several years ago, my business partner and I decided it was time to sell a website we had worked on for a number of years. This was the first time either of us had sold a business, and weren’t sure where to start. Tapping our professional networks, I connected with J. Money, who had sold his own website and now helps other business owners do the same.
His fee—a 10% success fee of the sales price—was well worth it to us, as he quickly brought us a couple of qualified buyers, and helped us navigate the decision of whom to sell it to.
Ours was a simple transaction, but for many business owners, selling a business can be a complicated process. That’s where business brokers come in.
A business broker can help you sell your business faster, for more money, and guide you through potential pitfalls. Here’s what you need to know about paying a business broker.
First Understand Business Broker Fees
When you decide to sell your business, it’s natural to wonder, “How much do business brokers charge?”
Business brokers often charge a commission fee based on your final sale price, similar to how real estate agents charge a commission when selling a house. However, broker fees can vary based on the size of your business and other factors.
Andrew Cagnetta is CEO of Transworld Business Advisors. He’s spent over 30 years guiding business owners through the process of selling their businesses. (He also says he sold his own business years ago, before he knew about business broker services.)
There are usually three main types of business broker fees, he explains.
- “Upfront fees, which often include an opinion of value and marketing materials;
- Success fees, which are usually a percentage of the sale price or a flat minimum fee for small businesses; and sometimes
- Monthly retainer fees for ongoing work on complex sales.”
Types of Broker Fees
The most common type of broker fee is a success-based commission, paid when your business sells.
Chris Dukich is the founder of Display NOW, which creates digital signage for businesses of all sizes. He has sold businesses with the help of business brokers.
He says that in his experience, “business broker fees generally include a percentage-based commission on the final sale price (typically ranging between 5% and 12%), a listing fee, and sometimes an engagement fee to start the process. These fees compensate brokers for their expertise in valuation, marketing, negotiation, and closing the deal.”
Typical Commission Rates for Different Business Sizes
Small business sales typically command the highest commission rates, as a percentage of sales. (A lot of work can go into even a relatively small sale). But, again, it depends on a number of factors.
Colin Ma is the co-founder of the Niche Pursuits Community. He’s sold several of his own businesses using a broker, and has helped more than a dozen people sell their businesses.
“I typically see something like the following,” says Ma:
- 15% first 500K
- 10% 500K-1M
- 5.5% 1M-5M
He gives this example: “So if a business sells for $700,000 under this structure, the broker fee would be: .15*$500K+.08*$200K = $91,000.”
Again, there may be a combination of flat fees and commission based on purchase price: be sure to read the agreement carefully to understand the costs involved.
Factors Influencing Broker Fees
Ma says the most common factors that may affect broker pricing include:
- Profit
- Stability
- Diversity of revenue & customers
- Owner involvement (less is better)
- Broker experience
- Brand strength
Let’s look at a couple of important factors:
Business size and revenue
Larger businesses often require more complex valuations and marketing efforts, which can influence the overall fee structure.
“The higher you go, the more services you’ll see and often have multiple team members involved. You’ll also be paying less of a (commission percentage) the higher you go,” notes Ma. “Also, as you go higher (in price), the fees may be less based on a (percentage) and more on billable hours.”
“Business size and revenue can affect the percentage fee, which may decrease as the size increases, Cagnetta observes. “Deal complexity and industry can also affect fees, sometimes leading to monthly fees if finding a buyer is more challenging. Location and broker experience generally don’t impact fees.”
“Small businesses usually attract individual buyers,” he adds. “Lower middle market businesses can attract both individual and corporate buyers, while larger businesses often require a strategic M&A process.”
Industry and deal complexity
Some industries need specialized knowledge or licenses to broker sales. Healthcare businesses, for example, often command higher broker fees due to regulatory requirements and complex transitions.
What Do Broker Fees Cover?
The business broker commission you pay may pay for a variety of services. These may include “finding buyers, verifying earnings, expenses, etc (not complete due diligence), helping with escrow, negotiations, and sometimes website transfer assistance,” Ma notes.
- Business valuation and pricing strategy
- Marketing materials and confidential business listings
- Finding and screening potential buyers
- Negotiating offers and deal terms
- Managing the due diligence process
- Coordinating with lawyers and accountants
“Broker fees cover the full range of services that facilitate the successful sale of a business, including valuation, preparing financial documents, marketing, finding and vetting potential buyers, leading negotiations, and managing due diligence,” Dukich says. “Essentially, the fee is an all-inclusive charge to cover the time, effort, and resources required to close the deal.”
But don’t assume everything is included. “Brokers’ time and marketing costs (are usually included),” says Cagnetta. “Legal and accounting fees are not included.”
You also need to make sure your broker knows how to evaluate prospective buyers so you avoid wasting time. If the buyer needs to get a small business loan to purchase the business, for example, you’ll want a broker who can help you decide how long to wait for that approval to come through.
When Are Broker Fees Paid?
Broker fees are typically paid at closing from the sale proceeds. This means you don’t pay the full commission until your business actually sells. Any upfront fees or retainers are usually credited against the final commission.
“Some brokers may charge an upfront engagement or listing fee to initiate the process,” says Dukich. “It’s crucial to clarify these terms in the engagement agreement.”
How to Negotiate Broker Fees
Start by getting quotes from multiple brokers. While fees are often negotiable, most experts suggest focusing on value rather than just cost. Ask about:
- Specific services they include and don’t include
- Minimum commissions
- Experience
“When negotiating broker fees, it’s essential to evaluate the broker’s experience and track record within your industry,” suggests Dukich. “Be open about discussing fee structures and any additional costs that could arise. A flexible engagement fee or a commission-based structure that incentivizes closing the deal at a higher price can also be negotiated.”
Be careful about trying to get a rock-bottom deal.
“An experienced broker has a resume of sales and a number of connections to contact,” says Ma. That was my experience: our broker had a list of qualified potential buyers that he tapped to quickly get interest.
Cagnetta is more blunt: “You get what you pay for. Quality service justifies the cost.”
Alternatives to Using a Business Broker
There are options besides using a broker:
- Selling your business yourself (for sale by owner)
- Using online business-for-sale platforms
- Working with an attorney and/or mergers and acquisitions advisor
- Hiring an investment banker (for larger businesses)
Sometimes business owners will be approached by a potential buyer and hire the financial and/or legal experts they need to facilitate the sale.
Be careful: trying to save money can be costly if you don’t know what you’re doing.
In a Nutshell, Is a Business Broker Worth the Cost?
For most small business owners, working with a business broker makes financial sense. Brokers often help you get a higher sale price that more than covers their fee. They also save you time and reduce your legal risks by managing the complex selling process.
“Choose a broker with a proven track record in your industry and of similar-sized businesses. It’s essential to have a broker who understands the nuances of your sector, has strong negotiation skills, and can provide references from previous clients. Conduct interviews to gauge their approach and ensure transparency in their fee structure,” says Dukich.
“Understanding the broker’s value proposition is key. A competent broker not only helps with the technicalities of the transaction but also adds value by creating competitive dynamics among buyers, increasing the business’s perceived value, and expediting the sale process. Always review their engagement agreement carefully to avoid hidden fees or unclear terms.”
Cagnetta adds a couple of other tips. “Make sure the broker you pick has the resources to properly market your business. And that they are willing to co-broke and work with other brokers.”
Ma offers a final suggestion that resonated with me, and that’s to find a broker who understands what you are looking for in a buyer. After building our business for many years, my partner and I wanted to find a buyer that aligned with our philosophy.
“Don’t just find a broker that is good, but one that understands your motivations for selling a business,” Ma says. “Oftentimes sellers don’t just want a good selling price, but also want to make sure their business will be in good hands.”
This article was originally written on November 11, 2024 and updated on November 12, 2024.
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