What percentage does a business broker make? 10% is the golden number for the Golden State. Understand fee structures, factors that influence costs, and how to negotiate the best deal for your business sale.
You’ve poured your heart and soul into building your business. Now, it’s time to reap the rewards of your hard work by selling it for the best possible price. But as you consider enlisting the help of a business broker, a crucial question arises: “How much will it cost me?“
While it’s true that business brokers come with a cost, it’s essential to view their fees as an investment, not just an expense. A skilled business broker in California can significantly impact your final selling price, often exceeding the cost of their services. Think of it like this: Would you try to sell your house without a realtor? Probably not. A realtor’s expertise in marketing, negotiation, and navigating the real estate market can make all the difference in getting you the best deal. The same applies to selling your business in California.
So, how much do business brokers charge? There’s no one-size-fits-all answer. Fee structures can vary depending on several factors. Let’s explore the most common fee arrangements.
Common Fee Structures for Business Brokers in California
1. Percentage of Sale Price
This is the most common fee structure. Brokers typically charge a percentage of the final sale price of your business. The percentage can range from 5% to 10% for smaller businesses (under $2 million in revenue), and it may be lower for larger businesses.
Here’s an example to illustrate how this works:
| Sale Price | 5% Commission | 8% Commission | 10% Commission |
| $500,000 | $25,000 | $40,000 | $50,000 |
| $1,000,000 | $50,000 | $80,000 | $100,000 |
| $2,000,000 | $100,000 | $160,000 | $200,000 |
2. Lehman Formula
The Lehman Formula is a tiered commission structure that’s sometimes used. It typically involves a higher percentage for the first portion of the sale price and a lower percentage for the remaining amount. For example, a broker might charge 10% on the first $1 million and 6% on the remaining balance.
3. Success Fees
In some cases, a broker might charge a success fee in addition to a base fee or commission. This fee is usually payable only if the sale is successful. This is what Andrew Rogerson of Rogerson Business Services preferred choice.
4. Hourly Rates
Some brokers might charge an hourly rate for specific consulting services, such as business valuations or due diligence assistance.
5. Retainer Fees
A business broker might require a retainer fee upfront to cover initial expenses and secure their services. This fee is often credited towards the final commission or success fee.
Factors Affecting Broker Fees
Several factors can influence how much a business broker charges:
- Business size and complexity: Larger or more complex businesses might have lower commission percentages but higher overall fees due to the increased time and effort involved in the sale.
- Industry: Some industries have higher typical broker fees than others.
- Broker experience and reputation: Experienced or specialized brokers with a proven track record often command higher fees.
- Market conditions: A competitive market might lead to lower fees as brokers compete for clients.
- Scope of services: The range of services offered by the broker can affect fees. A broker who provides comprehensive support, including marketing, negotiation, and due diligence assistance, might charge more than a broker who offers limited services.
Understanding Your Broker Agreement
Before engaging a broker, carefully review the broker agreement and understand all the terms, including:
- Fee structure: Clearly define the fee arrangement, whether it’s a percentage of the sale price, Lehman Formula, success fee, or a combination of structures.
- Payment schedule: Outline when and how broker fees are paid (e.g., at closing, in installments).
- Expenses: Specify which expenses the seller is responsible for, such as marketing costs, legal fees, or due diligence expenses.
- Termination clause: Understand the conditions under which the agreement can be terminated by either party.
Negotiating Broker Fees
Don’t hesitate to negotiate broker fees. Here are some tips:
- Be prepared: Research typical fees in your industry and area.
- Communicate openly: Discuss your expectations and budget with the broker.
- Highlight the value proposition: If you have a particularly desirable business or require specialized expertise, you might have more leverage in negotiations.
Recap: What Percentage Does a Broker Get for Selling a Business in California
Understanding broker fees is crucial when selling your business. While brokers do cost money, their expertise, network, and negotiation skills can significantly impact your final selling price and ensure a smoother transaction.
Ready to discuss your specific needs and explore fee options? Contact Andrew Rogerson today for a free consultation.
