One of the most important considerations for most business sellers when deciding which business broking agency to work with is fee structure. In fact, one of the very first things most business sellers want to know from a prospective business broker is the amount of fee they will have to pay.
Business broking agencies offer a variety of fee structures depending on the size and value of the business (which in turn determine the size of the transaction) and the nature of the services they will provide.
The fee structure of business broking agencies varies depending on several factors. Most business broking agencies will charge a success or sale fee for their services. The success or sale fee is the percentage of the final sale price your business will be sold for that your business broking agency will charge as their fee for services rendered. This is the bulk of the fee that business brokers charge. A business broking agency may also ask for an advance fee called a retainer at the beginning of the sale process (usually after the listing agreement has been signed). Though the amount of retainer varies with each business broking agency, as a general rule the amount of the retainer doesn’t exceed 10% percent of the success or sale fee.
A business broking agency doesn’t usually handle the sale of businesses of less than A$100,000 in value. Real estate agents mostly handle the sale of such businesses. The service the real estate agent usually offers is merely placing a few ads and arranging for potential buyers to see the business. The rest of the process is handled by the seller. If a business broking agency ever handles the sale of such a business, they usually charge 10% of the value of the transaction on closing.
In the case of businesses between A$100,000 and A$1 million in value, a business broking agency generally charges a success or sale fee ranging from 8% to 12% of the price of the transaction and collects it when the transaction is finally closed. Some business broking agencies also charge a non-refundable retainer ranging from as low as A$1000 to as high as A$10,000 or more after the listing agreement has been signed. They do so mainly to prevent pseudo-sellers (sellers who have no intention of selling and simply want to see how much their businesses would sell for) from wasting their time and resources Business broking agencies provide their full range of services for the fee we have mentioned. These generally include: valuing the business, consulting for developing an exit strategy, preparing a sales package, marketing the business in a confidential manner, screening the buyers, etc.
In the case of businesses between A$1 million and A$5 million in value, a business broking agency usually charges a success or sale fee of 10% of the first million and 1% to 5% of the balance on the closing of the transaction. There are some agencies that charge 10% of the first million, 8% of the next, 6% of the next and 4% of the rest on the closing of the transaction. Some business broking agencies also charge a non-refundable retainer ranging from as low as A$2,000 to as high as A$20,000 or more.
For the fee we have mentioned above, a business broking agency, in addition to providing their usual range of services, helps the sellers in the evaluation of their businesses and offers full advice to them on how to maximize the value of their businesses. Some business broking agencies also prepare a summary of the business highlighting business information and industry analysis.
Business broking agencies usually don’t handle the sale of businesses over A$5 million in value as businesses between A$5 million and A$50 million usually get sold through Mergers and Acquisitions Intermediaries and those over A$50 million in value get sold through investment banks. But if business broking agencies ever do handle such business sales transactions they charge a success or sale fee consisting of a declining percentage on each million dollar of value, for instance, 5% of the first million + 4% of the second million + 3% of the third million + 2% of the fourth million + 1% of the rest, or 5% for the first and second million + 4% for the third and fourth million + 3% of the rest. Some business broking agencies also charge a non-refundable retainer ranging from as low as A$10,000 to as high as A$50,000 or more.
The information provided above is only meant for giving you a general idea of the fee you may have to pay to your business broker. You will naturally have to contact the business broking agency of your choice to know about the actual fee you will be required to pay.