When it comes to business broker fees, a little bit of shopping around will reveal a significant divergence in both potential total fees and the stage at which they are charged. What will also become apparent is that some fee structures are definitely fairer than others.
Total Fees
If we discuss total business broker fees first, a broker is rightly well recompensed for delivering a successful sale. Selling a business is a skilled and challenging process and an experienced broker can be the difference in getting a deal over the line. He or she also has the capacity to improve the potential total consideration by maybe 10 to 20%. Beware brokers who claim to achieve prices of 50% higher or more – by definition that implies a naïve buyer and there are very few of those around.
However, in the context of improving a deal by 10 or 20%, then fees of somewhere between 2.5% and 5% look reasonable value. Effectively a business broker manages the process on a seller’s behalf while achieving gains that more than offset their fees. The old adage that ‘you get what you pay for’ is also likely to hold true – choosing your business broker exclusively on lowest fees is likely to prove a false economy. Fortunately, engaging your broker is likely to involve several upfront conversations. Thus there is ample opportunity to gauge their level of experience and the likelihood of them overachieving in negotiations on your behalf. Failing that, a question such as ‘talk me through how a debt free cash free balance sheet can benefit me’ can prove illuminating!
Upfront Fees
Where business broker fees get interesting is in the distribution of the fee between an upfront charge and fees payable only on success. A number of brokers, including some of the well known ‘names’ charge eye watering amounts upfront. This is accompanied by a spiel around incurred marketing costs and overachieving in the sale result etc
There is no dispute that there are some upfront incurred costs if your broker delivers a rounded marketing strategy. However, those costs are relatively small in the scheme of things – maybe £4,000 to £5,000. There in no justification in charging upfront fees beyond this sort of amount. Furthermore, if the broker is confident of overachieving in the sale, then they will reap their dividends in the success fee.
Conclusion
If you are considering engaging a business broker there are ultimately 2 fundamental questions to answer:
- Does the business broker have the requisite skills and experience to deliver both a successful and superior result.
- Is the fee structure fair and predominantly dependent on delivering a sale.
Whether you are considering a sale, require a business valuation, want to develop an exit strategy or indeed need assistance with an acquisition strategy, feel free to get in touch. At Morton Christie we will listen first and then provide salient and straightforward honest advice. And of course, our fee structure will be fair.
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