How Does A Business Broker Get Paid?
If you’ve decided to sell a business, you need help. Only a small percentage of business owners manage to get a good deal on their company without any assistance. No matter how many legal and financial advisors you have on your team, achieving the desired sale terms is almost impossible without an expert in the field.
This expert is a business broker. Since every service comes with a price, most business owners wonder how much money they’d have to pay for the broker’s assistance. In this article, we’ll go over what these professionals offer, how they are paid, and other common questions about brokers’ work.
What is a Business Broker?
A business broker is similar to a real estate agent. The process of selling a company is more complicated than selling a home. However, the basics are the same. Each sale comes with a variety of complex nuances, from setting the right price to avoiding fraudulent buyers. Even though all of the above is possible to achieve without assistance, for an average business owner, such tasks would take too much time.
That’s where brokers come in.
The toughest challenge owners face when selling their companies is the lack of offers. If you can be sure that you’ll sell a house as soon as you drop the price, the same doesn’t work for businesses. Many people wait for years for the right client to drop by while lowering the price gradually.
A broker knows how to finalize the sale without drastic price drops or a long waiting time. By studying the market, setting the right price, and monitoring potential clients, these specialists can achieve excellent results.
Since business brokers take up a substantial volume of work and responsibilities related to the sale, their pay can’t be low. However, they only get paid after the deal is finalized. According to an expert Cress V. Diglio, if such a specialist asks to be paid in advance, you may be facing a dishonest worker.
What Do Business Brokers Do?
Business brokers have numerous responsibilities.
- Assessing the business
- Helping prepare and gather necessary documents
- Sharing information that can help increase the price
- Acting as a third party between seller and buyer
- Searching for potential clients
- Preventing fraudulent deals
- Marketing efforts
- Assisting with negotiations between buyer and seller
- Trying to find the best possible deal in the shortest time
Experienced brokers know all the pitfalls of selling a company. Since the entire process is highly complex, it’s easy to make a mistake unless you know the possible obstacles. Brokers don’t just warn the business owner about these problems, they work hard to prevent them.
The key benefits of hiring a business broker are:
- Confidentiality – a business sale requires discretion. If everyone around knows that you are selling a company, you may start losing employees and clients. So if you delegate sale-related tasks to different people, your confidentiality may be compromised. Meanwhile, a broker ensures discretion.
- Promotion – an experienced broker knows how to market your company so potential buyers become interested in it. Marketing is a huge part of the selling effort.
- Objectivity – while a business owner may be emotional about the sale, especially if it’s not going as planned, a business broker has an objective view of the process. As a result, negotiations proceed much smoother.
- Paperwork – selling a business involves tons of paperwork. Making a mistake at any stage could cost you a good deal. Brokers know how to manage all the documentation timely and properly.
You get all of the above services for a certain percentage of the final selling price.
Should You Hire a Business Broker?
You’ve decided to sell your company. Do you know where to start? Selling a business involves plenty of preparations, paperwork, searching, researching, negotiating, and much more. Unless your business is in top shape and you want to sell it for a tiny amount, you’ve got plenty of work cut out for you.
As a owner, you probably have enough on your plate as it is. To sell a company properly, you need to become an expert business broker. Do you have time to do it? If not, then you should hire someone, who does.
Delegating business-selling responsibilities isn’t just a smart thing to do, it’s a necessity. No matter how hard you do your research, an experienced broker can still do a better job.
Are you hesitant about paying a high fee? Most likely, the broker can help you achieve a better deal, thus covering all the expenses.
How Does a Business Broker Get Paid?
So how much should you be ready to pay? A business broker rarely works for a flat fee. These specialists receive a percentage of the money you get after finalizing the deal. That’s why they are highly interested in selling your company faster and getting a higher price. While all brokers may have different fees, the general rule is:
- For small businesses – 10% of the sale price. The broker may ask for a small upfront fee to deal with immediate tasks. However, it rarely exceeds $2,000.
- For middle-sized and large businesses – the fee may vary from 3% to 10% of the final sale price.
When you hire a business broker, you have to be ready to pay 10% of the final sale price. Some brokers may ask for fees of up to 15%. However, it should never go over that level.
As we mentioned earlier, brokers rarely ask for large upfront payments. If they do, they may be dishonest.
Even though all broker fees are negotiable, you have to be careful about asking for a lower fee. Expert brokers are unlikely to budge because they know the true value of their services. If a broker agrees to a lower fee easily, it should raise a red flag.
On average, a business broker receives 10% of the final sale price. You may also need to pay a small upfront fee for immediate expenses. A business broker is an irreplaceable assistant during the sale. Without such an expert, it may be tough and time-consuming to achieve the desired deal.