Selling a business is a big step. Many business owners choose to work with a broker to make the process easier. But before you hire one, it’s important to know how much brokers charge to sell a business. Broker fees can vary based on several factors, such as the business size, location, and industry.
This guide will break down the different types of broker fees, why they charge these fees, and how you can negotiate to get the best deal.
How Do Business Brokers Charge for Their Services?
1. Commission-Based Fees
Most brokers charge a commission, meaning they take a percentage of the final sale price. This is the most common way brokers get paid. The commission usually ranges between 8% and 12%, but it can be higher or lower depending on the deal.
For example:
- If a business sells for $500,000 and the broker’s fee is 10%, they would earn $50,000.
- If a business sells for $2 million with an 8% commission, the broker would get $160,000.
Bigger businesses often have lower commission rates because the total payout is still high. Small businesses usually have higher rates because they require just as much effort to sell, but for a lower final price.
2. Flat Fees vs. Hourly Rates
Some brokers charge a flat fee instead of a percentage. This is more common for smaller businesses or when the owner only needs help with part of the process.
Typical pricing:
- Flat fee: $5,000 – $25,000 (one-time payment)
- Hourly rate: $150 – $500 per hour
Flat fees work well for businesses that are easy to sell, while hourly rates are better for specific tasks, like valuation or marketing.
3. Retainer Fees
Many brokers ask for an upfront retainer before they start working. This covers the costs of research, marketing, and finding buyers.
Retainer fees typically range from $2,000 to $10,000. Some brokers deduct this fee from the final commission, while others keep it regardless of whether the business sells.
4. Success Fees
Some brokers charge extra if they sell the business for a higher price than expected. This is called a success fee.
For example:
- If a broker agrees to sell your business for $1 million but manages to sell it for $1.2 million, they may charge an extra 1% to 3% on the extra $200,000.
This gives brokers an incentive to get the best possible price for your business.
Factors That Affect Broker Fees
1. Business Size & Value
The bigger and more valuable the business, the lower the percentage fee. But the total commission amount will still be high. For example:
- A $10 million business with a 5% commission results in a $500,000 fee.
- A $300,000 business with a 12% commission results in a $36,000 fee.
2. Industry & Market Demand
Some industries are in high demand, meaning businesses sell quickly with minimal effort. These businesses may have lower broker fees. Examples include:
- Technology startups
- E-commerce businesses
- Franchises with strong brand names
On the other hand, niche businesses that are hard to sell may have higher fees. These could include manufacturing businesses, specialty service providers, or seasonal businesses.
3. Broker Experience & Reputation
Highly experienced brokers charge more because they have a track record of getting better deals. However, their expertise often leads to higher sale prices, which can offset the higher commission.
A new or less experienced broker may charge lower fees but might take longer to find buyers or struggle with negotiations.
4. Geographic Location
Brokers in major cities like New York or Los Angeles typically charge higher fees due to the high cost of living and stronger business markets. Smaller cities and rural areas may have lower fees, but businesses may take longer to sell.
Are Broker Fees Negotiable?
Yes! Many brokers are open to negotiating their fees, especially if:
- Your business is easy to sell.
- You are selling for a high price.
- You are willing to give the broker exclusive rights to sell the business.
Tips for Negotiating Broker Fees:
- Compare multiple brokers. Get quotes from at least three brokers to find the best deal.
- Ask for a tiered commission. Some brokers agree to lower fees for higher sale prices. For example, they might charge 10% on the first $1 million and 5% on anything above that.
- Request a refundable retainer. Some brokers keep the retainer no matter what, but others might refund it if they don’t sell the business within a certain time.
Additional Costs to Consider
Even after paying the broker, you may have other costs, including:
- Legal Fees: $3,000 – $15,000 (for contracts and agreements)
- Accounting Fees: $1,500 – $10,000 (to handle taxes and financial records)
- Marketing Costs: Some brokers include this in their fee, but others charge extra ($1,000 – $5,000)
Make sure you ask about these costs upfront so you don’t get surprised by extra charges.
Conclusion
Hiring a broker can be expensive, but it often leads to a higher sale price and a smoother process. Brokers have the expertise, connections, and negotiation skills to get you the best deal.
Before choosing a broker, compare fees, negotiate terms, and make sure they have experience in your industry. With the right broker, you can sell your business faster and for a better price.
FAQs About Broker Fees
What percentage do most business brokers charge?
Most business brokers charge between 5% and 15% of the final sale price, depending on the business’s size and complexity.
Do all brokers charge upfront fees?
No, not all brokers require upfront payments. Some work on a commission-only basis, while others charge upfront or retainer fees to cover marketing and valuation costs.
How long does it take for a broker to sell a business?
The selling timeline varies based on industry demand, pricing, and market conditions, but it typically takes 6 to 12 months to finalize a sale.
Can I negotiate broker fees?
Yes, broker fees are often negotiable, especially if you have a high-value business or multiple buyers interested.
What happens if I find a buyer myself?
Some brokers have an exclusive listing agreement, meaning they still earn a commission. Others allow sellers to find buyers and reduce fees accordingly.
Are broker fees tax deductible?
In many cases, broker fees are considered selling expenses and can be deducted from the capital gains tax on the sale of the business.
How do I ensure a broker is reputable?
Check for certifications, client reviews, and successful past sales. Organizations like the IBBA (International Business Brokers Association) offer credible broker credentials.
Do brokers help with legal paperwork?
Brokers assist with contracts, negotiations, and due diligence, but you may still need an attorney for legal finalization.
What factors affect a broker’s commission rate?
The commission rate depends on business size, industry complexity, buyer demand, and the broker’s experience level.
Can I work with multiple brokers at the same time?
Most brokers require an exclusive contract, meaning you can’t list your business with multiple brokers simultaneously. However, some brokers allow non-exclusive arrangements with different fee structures.
