If you are looking to sell your business you may be concerned with business broker and M&A advisor fees.
While the media portrays the M&A world as a glamorous, high-flying, elite “good old boys” club of the 1980s, we can assure you that the small business M&A advisory world is quite the opposite.
Small business brokers and M&A advisors are typically not working in fancy Wall Street offices, wearing designer suits, and making billions of dollars like many of the largest Bulge Bracket investment banks do.
In this post we will cover the reality of business broker fees and M&A advisory fees as they relate to small business transactions.
This post covers the following topics:
The role of the small business broker
Differences between business brokers and M&A advisors
Business broker and M&A advisor fees
How to get the most from your business broker
The Role of the Small Business Broker
Small business brokers and M&A advisors are business professionals whose duty is to represent their client’s best interests in preparing and selling their business.
For business sellers, this means that business advisors must commit themselves to helping their clients achieve the greatest outcome with utmost discretion, confidentiality, and care.
After all, the business owner has poured their life savings into the business, employed dozens and even hundreds of trusted employees, including friends and family, and spent many early mornings, late nights, weekends, and holidays working on their business to support their families.
Differences Between Business Brokers and M&A Advisors
While the service that brokers and advisors provide achieves the same outcome (buying and selling businesses), the primary difference is in the size of the transactions that business brokers and M&A advisors execute.
Small business brokers generally work with businesses in the $1-25 million revenue or enterprise value. This is the majority of all businesses in the U.S.
Once the revenues and valuation of a business exceed $25 million (though some say above $50 million) you will most likely require the support of a more specialized firm, like a boutique investment bank, to help you with the complexities and rigor of selling a larger, more complex business.
Now, there are plenty of brokers & advisors who work with businesses between $1-100 million (there are many), but generally speaking, business brokers buy and sell small businesses, while M&A advisor firms and investment banks take on larger deals ranging from tens of millions into the billions.
Business Broker and M&A Advisor Fees
Most business brokers and M&A advisors charge success fees, or commissions, that are based on the value of the transaction they help their clients execute.
Unlike consultants, CPAs, and attorneys who typically charge an hourly rate, brokers and advisors earn a large portion, if not all of their income, in the form of success fee commissions.
A general range of fees based on deal size is as follows:
Business sale under $2 million: 8-12% fees
Sales between $2-5 million: 6-8% fees
Sales between $5-10 million: 5-7% fees
Sales above $10 million: 2-6% fees, with larger deals typically resulting in lower percentages
For larger M&A deals and some small business deals, you may find your advisor requiring a work fee or retainer to cover the initial costs of preparing the business valuation, marketing materials, paperwork, but these fees are typically credited against the ultimate success fee.
How to Get the Most from Your Business Broker
The best business advisors provide services to client clients that are predictable, consistent, and most importantly: Achieve the results that they engage to provide.
When selling a business, we often see our clients asking for:
Business valuation: What is the potential selling price of the business?
Timing: Is now the right time to sell my business?
Process: What is the process to sell my business? How long does it take?
Risks and Rewards: What are the risks of selling my business? What if my employees find out? What if the buyer fails to pay me or if the business fails after they buy it?
These are all logical questions and demands of a business owner looking to sell a business. And these are the exact questions we help our clients answer when it comes time to sell their business.
Book a free business valuation call today!