How Much is a Business Brokers Commission?

How Much is a Business Brokers Commission?

Typically, a business brokers commission is between 5-10% of the business sale price.  A broker will normally want to earn a minimum of $15,000 sales commission, though it can be $100,000+ if selling a multi-million-dollar company.

Business Brokers are the professionals who focus on the buying and selling of businesses and franchises. You are paying for their expert knowledge, skills and contacts in the business sales environment. In order to engage a business brokers service, you sign a contract to sell your business. Their payment is in terms of a commission rate that is paid once settlement has occurred. Usually, a broker has an exclusive agreement with the seller, so they are entitled to a commission if the business is sold under the contracted period (typically 6-9 months in a business sale). 

In 2023 we are seeing a variety of business broker models that are charging commissions and marketing costs. The structure will depend on the business broker you engage and the level of work they will provide.

A seller who is engaging a business broker should be looking at a combined commission and marketing strategy similar to real estate agents. The seller should be selecting a business broker who is advertising on the top 10 business for sale websites. This is to ensure your business is being seen by a wide selection of buyers. Business Sales is very different to real estate and the market for finding a niche buyer is different. Restricting marketing efforts is never the answer when selling a business. 

Guide of Business Broker Commission Rates

 

Sale Price of Business >	$100,000	$200,000	$300,000	$500,000	$1,000,000
5% Commission Rate	$5,000	$10,000	$15,000	$25,000	$50,000
7% Commission Rate	$7,000	$14,000	$21,000	$35,000	$70,000
10% Commission Rate	$10,000	$20,000	$30,000	$50,000	$100,000

 

How Do Business Brokers Choose Their Commission Rate?

This will be based on a number of factors such as; 

• How difficult your business is to sell (e.g. is it a niche industry)
• Whether they already have a buyer lined up
• Their experience
• Their marketing systems
   

Remember: Selecting a broker shouldn't just be based on the commission they charge. A broker may offer you a lower rate, but be unable to secure you a buyer. Selling a business is very different to selling property - finding the right buyer takes skills and expertise.  Bsale has put together a guide to help you in finding the right business broker for your business
 

How is the Commission Earned?
 

A business broker is there to assist you from start to finish with the business sale. The broker is normally involved in the following functions:

• Appraisal of the business.
• Prepare a memorandum or document outlining the business for potential buyers.
• Creating and distributing the marketing documents.
• Screening potential buyers to see whether they are genuine and have the necessary finances to purchase the business.
• Liaising between the buyer and seller in negotiations.
• Closing the deal and finalising the sale

You will need a team surrounding you when selling your business. A solicitor is also required to prepare the contract of sale, and an accountant to help organise your financials. Be sure to get professional advice when selling your business.

 

 

How Much Should You Be Paying for Marketing Costs?

 

If we are to compare business brokering to real estate, then the business brokers should provide you a clear breakdown of the marketing costs for each website and the avenues they will use to advertise your business for sale. It is important to understand exactly where your marketing spend is going. 

• Which websites will your business be advertised on? How much will it cost?
• Are they running paid ads on Google and Social Media? How much will it cost?
• Are they investing time in finding buyers on Linkedin? How much will it cost?
• Are they creating a seller's memo? How much will it cost?

Ask for a breakdown of the marketing costs. Paying $5,000 upfront is no guarantee the business will sell. You want a clear picture of where, when and how much the marketing is actually costing. Remember, a business broker works to earn a commission. The marketing budget should be just for that - Marketing! The commission they are earning is for providing their skills and advice, negotiating with buyers and getting the sale to completion. 

If a brokerage will not provide you with a clear breakdown of the spend for each marketing avenue, or even worse they are just charging a marketing expense and no commission or a very low commission like 1%, you need to question whether they are actually invested in selling your business, or just looking for a quick $5,000. 

 

Updated October 19, 2023

Tags: selling a business business brokers commission

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