Fees for selling a business you might not be aware of
March 15, 2023 ⋅ 11 min read
Your business is probably your passion and livelihood — so when you’re ready to sell, you want to make sure you’re getting the best price possible. But the price tag you originally put on your business often isn’t the amount that ends up in your pocket. There are plenty of fees to contend with when selling your business, and going through the sale process not knowing about them could give you a nasty surprise once the ink is dried.
Here’s our breakdown of some of the business selling fees you may not know about, and how to find the right professional to help you sell your business.
How much does selling a business cost?
When deciding to sell your business, there are a number of expected (and unexpected) costs to weigh. In some cases, it may cost almost nothing. In other cases, it can cost up to 15% of your total business’ sale price.
The biggest cost that comes after the closing period is the commission paid to your business broker or investment banker — aka the person who helps facilitate the sale of your business. If you decide to sell your business without a broker or other intermediary, you’ll typically only be on the hook for transaction fees and payments.
Business broker vs. M&A advisor vs. investment banker
There are a few key players that can help you sell your business — finding the right one for you largely depends on the size of your business and what you’re looking for out of an intermediary. To learn more, check out this detailed breakdown.
Business brokers may help you sell your business at the right price. They provide support and various services for the seller, including helping you gather your financial documents, value your business, create a market for your business, and find a buyer for your business. A business brokerage can also make the selling process more efficient by managing the due diligence process for you and facilitating the closing process. Business brokers typically serve small businesses — those less than $5 million in revenue — that sell to an individual buyer, much like a real estate agent selling a house.
An M&A (Mergers and Acquisitions) Advisor helps facilitate the transfer of ownership and control of a privately-held company through sale, purchase, or merger. M&A brokers typically work on larger and more complex transactions involving multi-million dollar deals. Similar to a business broker, M&A brokers help evaluate the value of a business, identify prospective buyers, develop a marketing plan, create documentation, and finalize the sale agreement.
Mergers and acquisitions advisors typically serve mid-sized businesses, while investment bankers will often handle large business sales. These larger transactions are often complex and come with more regulations, which require the professional carrying out the deal to have certain licenses. Investment banks provide many services that business brokers don’t, including fairness options and public offerings.
Fees for an M&A firm vs. a business broker
Business brokers, M&A advisors, and investment bankers all have different payment structures – not to mention fees can vary widely between different brokers and bankers. This makes comparing costs difficult in some cases.
Business brokers earn money through commissions based on a percentage of the deal. These are typically 8% to 12 % of the sale price of a company. Typically a broker may ask for upfront fees to be paid to help cover expenses related to the transaction. This may include a valuation fee for completing a valuation of your business.M&A advisors will typically make money through retainers or fees based on a percentage of the deal. At the beginning of their contract, the seller may commit to a fixed retainer. Some M&A firms invoice monthly throughout the transaction and credit the fee against the success fee after the deal closes. Typically, for M&A brokers, the larger the deal size, the smaller the M&A percentage fee is. Fees can range anywhere from 2% of the deal all the way to 12%.
Making sure you have the right partner by your side when selling your business is the key to a successful business sale. Generally, the size and complexity of your business determine the type of advisor you need. M&A advisors provide comprehensive services and are ideal for larger businesses with complex transactions, typically transactions that are $5 million to $500 million. Business brokers best meet the needs of relatively smaller businesses or those under $1 million. Need help choosing? At Baton, we offer free, data-backed business valuation estimates and personalized advice to help maximize your business's value before you sell.
The cost of a business broker depends on their business structure
Business brokers charge varying rates depending on factors such as the range of services offered. Finding an affordable broker is a smart move, but that doesn’t mean you should compromise on quality.
Different business brokers have varying fee structures. Typical charges may include:
The most common fee business brokers will charge a success fee, typically between 5%-15% of the total sale price. While less likely, others will also charge upfront fees and monthly retainers. As you may expect, brokers who charge high commissions are usually more motivated to close the deal to get their share of the money. In other cases, a business owner will pay a business broker hourly for services, typically if they don’t need the broker’s full services and only need them for one specific aspect of the selling process. Work with Baton today to get a completely free valuation.
Fees upfront vs. post-sale fees from business brokers
Two common fees a business broker will charge are the upfront fee and the post-sales fee. Some will charge you at both the front end and the back end of the sales process, while others will charge you both fees after a sale is complete. Most business brokers are typically paid after the sale closes. In some cases, brokers will list a “minimum” success fee to ensure they get paid a certain amount, though that doesn’t mean that’s all you should expect to pay.
There may be other expenses the business owner will need to pay the business broker throughout the sales process, like an upfront fee for marketing or valuing the business. Sometimes business brokers will charge a higher fee upfront if the business is harder to market or is in a specialized industry.
Benefits of paying a broker after your business is sold
If a broker makes most of their money after the business is sold, they are much more incentivized to sell it as quickly as possible. Most brokers who are paid only by commission will only take on businesses that they are confident they can sell, as they don’t want to waste their time.
Should I pay upfront for selling my business?
In some cases, it may make sense to pay your business broker a fee upfront. For one, it shows your business broker you’re serious about selling your company and may motivate them to sell your company at the right price as efficiently as possible. It also may help them pay for upfront marketing costs.
However, some upfront fees can run into the thousands, which may lead brokers to take on businesses they aren’t sure they can sell just so they get the upfront fee.
Are business broker fees negotiable?
There’s no law determining how much a business broker should charge — how much they walk away with is basically an agreement between you and the broker. In some cases, business broker fees are negotiable. Visiting with a number of potential brokers and then using other offers to negotiate can help you bring the overall price down or reduce certain fees.
Baton has a network of brokers with transparent pricing information to assure that you don’t get taken advantage of.
Many brokers will customize their prices based on your business and your specific broker needs. It helps to have a clear understanding when meeting with a broker for the first time what specific services you’re looking for and how much you’re willing to pay.
When selling a business the rate of commission is determined by?
When it comes to selling your business, the rate of a business broker’s commission is often largely determined by the sale price of your business, the state you’re in, and the size of your business.
What is a normal brokerage fee?
As we said before, the normal business broker fee is around 5%-15% of the total sale price. So, for example, if you sell your business for $750,000 and your broker fee is 8%, you’ll pay $60,000 to the broker.
One way M&A advisors structure their fees is via the Double Lehman scale, which ladders the client charges:
10% on the first million, plus
8% on the second million, plus
6% on the third million, plus
4% on the fourth million, plus
2% on any remaining amount.
Other Fees Associated With Selling Your Business
There are some other fees to consider when it comes to selling your business, including:
Transfer fees will occur if you’re selling a franchise business, which will typically cover the cost of the franchisor to review the prospective buyer and prepare the documents to transfer over the franchise.
Assignment fees work similarly to transfer fees but go to your landlord instead of your franchisor. These fees will cover the costs of transferring the lease over to the new owner.
Prepayment penalties are processed if you have an outstanding mortgage or loan associated with your business and it’s paid off early. This is common with commercial real property loans at the beginning of the lease agreement. Not all mortgages have this clause, so make sure to check your loan to make sure.
If you aren’t sure how much your business is worth, it may cost you to get an accurate number. Valuations look at the fair market value of your company and factor in your unique situation and industry. Baton can help you find the valuation for your company and avoid this fee.
Legal fees depend largely on the type of business you have and how complex, legally, the sale was to execute, including the structure of the business, the complexity of the deal, and the risks associated with selling your business. In other words, the more time it takes to legally arrange your business sale, the higher these fees will be.
Most attorneys will charge hourly, though some may offer a lump-sum fee arrangement by estimating the amount of time it’ll take to complete the transaction. This may help you estimate or budget for these fees.
You’ll also likely need an accountant to determine the tax implications of the sale. Similar to an attorney, most accountants charge an hourly fee but may offer a fixed-price option based on the services offered. Both attorneys and accountants can ensure all legal and tax issues are dealt with prior to the sale.
There are a number of tax implications that come with selling a business, and understanding how much you’ll pay in taxes is hugely important. You’ll want to minimize your taxes as much as possible (this is where an accountant can help) to avoid a surprise come tax time.
Additionally, if you’re selling real estate alongside your business, you may have to pay transfer taxes, depending on where you live.
How do I choose a business broker?
No two business brokers are the same – and most business broker relationships last the entire length of the sale – which will be months, maybe even over a year. This means you’ll want to find the right broker who you enjoy working with. After all, this person may be marketing your life’s work to buyers and can deeply influence a sale.
The types of services offered and quality of services offered vary widely from broker to broker, making it even more critical for you to properly vet a broker to make sure they have the experience to successfully sell your business.
Some business brokers will work relentlessly to get you the deal you’re looking for, while others will simply waste your time and money. Settling for an imperfect business broker can potentially hurt the successful sale of your business or just lead to a generally unsavory process.
That being said, not every business sale needs a broker. Check out this guide to learn about the pros and cons of working with a broker.
Selling your company may be one of the most important transactions of your life, and you don’t want to leave money on the table. That’s why it’s just so important to understand the fees involved with selling your business, so you can maximize your take-home pay.
One way to manage the sale of your small business yourself is through Baton. We provide business owners with a free, data-backed business valuation estimate, along with personalized feedback to help enhance your small business’ value before you sell. We also have a network of vetted industry partners (which includes brokers) to help sell your business. Our principle is to never charge the owner directly – we make money from referrals when an owner connects to one of our partners. Find out what your business is worth and get access to our vetted partner network by getting started today.