There are many different business brokers operating these days and almost as many different fee structures. The standard fee structure that we have found to work well for sales mandates is:
- a small monthly work fee for the duration of the engagement; and,
- a percentage success fee upon the closing of a transaction.
The amount of the monthly work fee and percentage success fee will vary based upon the size and complexity of the business being offered for sale as well as the broker’s perception of the likely market for the business. All else being equal, the easier a business is to sell, the lower the fees will be.
The monthly work fee is designed to cover a portion of our time and costs to manage the divestiture process and also to ensure that there is a sufficient level of buy-in and commitment to the process on behalf of the seller. Given the amount of time that it takes to package, market and conclude a successful sale, we will usually only be able to recover our costs upon the successful sale of a business. This type of fee structure motivates us to work hard to get the deal done and creates strong goal alignment between us and the business owner. In many cases, we will present a tiered, or ‘ratcheted’ fee structure, where the percentage success fee increases as the transaction value increases. If we are successful in creating a competitive sales process and are able to generate higher than expected sales proceeds, then we will earn a greater share in the proceeds. We have found that many of our clients really like the tiered fee structures as they are more than willing to compensate us if we are able to generate proceeds beyond their initial expectations. This is where a good broker can make such a difference to a business owner as the broker’s fees can be more than covered by the additional proceeds that the broker is able to generate through the sales and negotiation process.