Tweet

Business Brokers' Fees

Guest post by: Omar Kettani

Article Overview: Business brokers, Business Intermediaries and Mergers & Acquisitions professionals have different fee structures and offer different types of services. The size of the transaction in terms of the business value generally dictates the types of professionals to work with and the nature of fees business sellers need to pay in order to sell their companies.

Business Brokers' Fees

One of the first questions business sellers ask me as a business broker in Toronto, Ontario is "what are your fees?" Business owners contemplating the sale of their companies generally consider fee structure a very important criterion for the selection of a broker to work with. The business brokerage/Intermediation/ Mergers and acquisition markets offer a variety of fee structures depending on the size of the transaction and the nature of the services offered. Businesses of less than $100,000 in value generally sell through Real Estate Agents who sell mostly real estate and a few businesses on the side per year. The service offered is merely putting an ad in MLS and showing potential buyers the business. The seller does most of the selling and answers buyers' questions. The Real Estate salesperson charges a flat fee of $10,000 or 10% of the value of the transaction on closing. A real estate agent can hardly make living selling businesses only because a large percentage (over 90%) of these small businesses never sell.

Businesses between $100,000 and $1M in value generally sell through business brokers/Intermediaries. In the province of Ontario, Canada and some US states, business intermediaries need to be real estate licensed. These brokers tend to offer a wider range of services including, business valuation, exit strategy consulting, preparation of a sales package or an offering memorandum, buyer screening and confidential marketing etc. Their fees generally range from 8% to 12% of the price of the transaction and is generally paid on closing. Some intermediaries charge a non refundable retainer between $1000 at $10,000 after signing the listing agreement. Businesses of these sizes generally have higher probabilities of selling because they are more professionally prepared for the sale. Because of the absence or the small amount of retainer charged, the number of sellers changing their minds about selling in the middle of the sale process tends to be very high. Some sellers tend to simply taste the waters to see how much their businesses are worth with no intention of selling. This ends-up costing a lot of time to business intermediaries.

Businesses between $1M and $5M in value tend to sell through business brokers/Intermediaries who specialize in the lower middle market segment. These are more sophisticated business brokers who generally have a good understanding of Finance and Business Strategy and have the necessary people/sales skills to help in the long and tedious negotiation process. These intermediaries generally help in the business evaluation and provide advice to business sellers to maximize the business value. Some intermediaries prepare a short business summery of a few pages with summarized business information and industry analysis. Some but not all of these intermediaries charge a non-refundable retainer between $2,000 and $20,000. The success fee/ commission charged on closing of transactions is generally 10% of the first million dollars and 1% to 5% of the balance. This segment of the brokerage industry has been impacted the most by the Internet and the profession has been open to new entrants who do not have deep connections within traditional industry players. Business listings are simply advertised through large business for sale websites and generally attract a large enough pool of buyers to locate a serious buyer.

Businesses between $5M and $50M in value are sold through Mergers and Acquisitions Intermediaries/Advisors. Those professionals generally process more advanced finance skills and are capable of detailed business valuations. They also offer more extensive sales package for the businesses to be sold. The sales package involves an extensive interview with the business owner and some key employees and a determination of the key success factors for the business, a detailed industry analysis and potential synergies and/or opportunities for expansion for potential buyers. Because the sales package involves a large number of hours of work, most M&A (Mergers and Acquisitions) Intermediaries charge a non-refundable retainer between $10,000 and $50,000. Charging a retainer also insures that only serious business sellers will list their businesses. While this practice tends to reduce the number of potential listings that an Intermediary will have at a certain time, it does insure a much higher quality of listings, meaning motivated sellers and realistic prices. On top of the retainer, these intermediaries charge a success fee using the Lehman or Double Lehman formulas. These formulas consist of charging a declining percentage on each million dollar of value ( 5% of first million + 4% of the second million + 3% of the third million + 2% of the fourth million + 1% of any balance) or (5% for first and second million + 4% for third and fourth million + 3% of the balance).

Businesses with over $50M in value generally sell through medium size and large investment banks and have more complicated fee structures.

Related Articles
  Brokers, why use them?
  Are Business Brokers Licensed?
  Choosing a Broker
  Using Business Loan Brokers, Is It Worth It?
  FRANCHISE BROKERS vs FRANCHISING CONSULTANTS
  Brokers, who needs them?
  Is it time for Commercial Mortgage Brokers to be Regulated?
  First Time Home Buyers – Answering Frequently Asked Questions
  Why Franchisees Should Consider Using a Franchise Broker
  IRA Advice Could Soon Change!
  What is a Business Broker?
  Business Brokers - How to Deal With Them As a Buyer?
  Brokers, Dealers, Private Lenders, and Venture Capital
  Sales Agreement
  Sales Agreement
  Franchise Payments Franchisees Can Expect to Pay
  Getting A Car Loan
  Getting Car Finance Approved
  Getting That Car Loan
  Ethical Expectation You Should Expect From Your Business Broker

Article Tags: business brokers, business for sale, fees, ontario, toronto



Related Forum Posts
Del Castienne - International Business and Project Brokers - In addition to the above, Del Castienne is an international brokerage firm specializing in various entrepreneural services. Del Castienne is more than just a brokerage, as we facilitate Private International Venture Capital for Business and Projects from Commodity Speculation Transactions, MBO, MBI, M&A, Bridging Finance, Patents, Branding, JV, Corporate Advisory Services, Business Plan Development, etc.. Del Castienne is linked to 1200 private international Venture Capital consortiums and Funding Syndicates with a funding capacity of $ 115 billion and 5000 international Investment Bankers and Business & Project Brokers. This in itself should provide you with a gateway to the best source of funding in the world. Through Del Castienne any entrepreneur can have up to a potential success rate of 25% (conditions apply) with absolutely no up front costs. Del Castienne charges a maximum of 5% commission which is far below the international standard of 10% - 12% on project value. If you are tired of running back and forth with countless dissappointments, please give us an opportunity to assist you. Our minimum Venture Capital amount is $1 million and we a Commitment Letter can be provided with in 30 days after formalities are in place and your information was received.
Here to Meet Great People! - Hi Matthew Ferry here! I am a life coach and also an entrepreneur. I work with people from all walks of life, Real Estate Agents/Brokers, Entrepreneurs, Businessmen. Great to be here in this forum! Looking forward to hear from you! Thanks!
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
Exclusive: Interview with Results - Hi Forum Members, I'm helping start up a Business Coaching and Consulting company here in Toronto, Ontario, Canada (a Subsidiary of RSC Business in Los Angeles). As a Research and Development Intern I am required to practice my listening and interview skills by surveying Small and Medium Businesses on thier Business. This Survey is designed by RSC Business to also assist the Business being interviewed more insight into their own business. I am looking to interview about 30 businesses across North America over the span of 3 months. At the end of these interviews I will be publishing a report of the results and they will be made available for free to the Interviewees. The Report data will include responses from a minimum of 100 interviews. I would like to extend this opportunity to members of the Forum. If you would like to have this short 20-30 minute interview conducted on your Business and you reside in North America please send me an email or PM. Please contact me at andy[at]jvprosperity[dot]com to arrange our interview and to get free access to the results when they are published.
Re: HOw to market a B2B consulting company - [quote="zohahunt77":428owzbi]Hi, I was wondering if anyone can tell me the difference between B2B and B2C. I don’t know about b2b marketing but I have done marketing so know things about it. I will suggest you to take online services which will spread your business all over web network. Online marketing is the best way to market any business.[/quote:428owzbi] B2B = Business to Business - You are marketing to other businesses. B2C = Business to Consumer - You are marketing to consumers.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

How To Become A Member of the Paparazzi

9 tips to increase ROI in PPC Campaigns

Soda Vending Machine = Energy Hog

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.