Short answer: usually around 8%-10% of the price at which they list/sell your business, but we’ve seen outlier prices of 3% and 12%.
But their fee structure varies widely. For very small businesses, for example, it could be in the nature of “£5,000 or 10% of the selling price, whichever is higher”. For an enterprise value of £10M+ the structure would normally entail a retainer, a monthly fee and, on a sliding scale, a percentage of the final deal.
Primarily, you’ll be choosing between
- a broker that charges no up-front fee and gets paid only on completion – a contingent success fee
- a broker that charges a small up-front fee or a per hour fee and a percentage commission on achieving a successful sale
- an M&A firm or an Investment Bank (if you’re a larger business) that charges a sizeable up-front fee – £40K-£100K for a business with a £5M-£10M turnover is not uncommon- and a sale commission based on the Lehman /Double Lehman or other scale. There is also, sometimes, a monthly fee for marketing and disbursements.
For the small business it’s not as easy a choice as it may first appear. Sure, no up-front payment comes across as no risk for you, but it could cost you a lot more in the longer term.
Any broker who is willing to put considerable effort into understanding a business, packaging and marketing it well etc., is investing a lot of time and money into the process. However, it’s not unknown for business owners to change their mind about selling, hold out for an unreasonable price or otherwise hamper the process. When that happens the broker loses. Some of the best brokers and the biggest brokers protect themselves by charging a retainer. A broker who uses those upfront fees to better understand, prepare and present your business – rather that using it to pay the salesman his commission – achieves an appreciably higher price which more than covers those costs. Sometimes it’s 100% more that what your business would have sold for without their help. So it’s not wise to rule a broker out simply because of the up-front fee.
At the other end of the scale, small brokers invest significantly less in the process. They may meet with you and provide some assistance towards creating your Confidential Memorandum, they then list your business on one or more “Business for Sale” classified listing sites and sit back and wait for enquiries. When buyers arrive they leave it to you to discuss the price, the contract and the structure of the deal – none of which you’re best positioned to handle. Their cost is lowe: just the price of time spent on the memorandum + the cost of listing on classified sites. They can afford to take a chance on you pulling out as they have invested very little.
The worst deal, of course, is that provided by brokers who charge an up-front fee on the grounds of the work involved, but who don’t actually put in that work. As a seller it’s your job to ask the right questions and learn how to help and monitor your broker through the process to ensure you’re getting value for money.
Our guide to choosing a broker covers these questions and a lot more. It’s a powerful tool you can’t afford to not have in your toolbox. It explains how you can negotiate your broker’s price down and what incentivises him to agree a lower fee. One business owner saved in excess of £30,000 using the advice in this guide. It’s a £300 value that comes free to you as part of your first month’s subscription.
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