Paying upfront fees to business sale agents
When selling your business, there are many channels through which you can arrange a business valuation and source a buyer. A popular and results-driven route taken by business sellers is to appoint a business transfer agent, also known as a business broker. When enlisting a professional sale agent to manage the sale of your business, you will need to understand the fee structure, what constitutes a reasonable price and how you should pay this.
A frequently asked question by business sellers is – should I pay an upfront fee to sell a business? To answer this, we run through how business brokers charge and common pricing pitfalls that could disrupt the business sale process.
Should you pay upfront fees to business brokers?
Our guide on how to appoint a business broker when selling a business runs through typical pricing structures, such as commission fee, advertising fee and additional costs that may incur along the way. By understanding common business models, you can take an informed approach when appointing a business broker based on their fees, amongst other mitigating factors, such as reputation and experience.
There are two common routes business brokers will take to charge fees, that include:
- Low upfront fee and commission upon sale completion
- High upfront fee and additional commission upon sale completion
The latter is a common tactic that could result in paying an extortionate upfront fee under the guise that your business will sell for more than it is worth. A false promise as such could result in disappointment as it is highly likely that the business could fail to sell, incurring avoidable delays.
Paying an upfront fee could trap you into staying loyal to the business broker as you are financially committed, even when the business fails to sell. Paying an upfront fee could erase the financial incentive for the business broker which could otherwise accelerate marketing efforts and encourage more time to be invested in finding a buyer. Although there are a minority of business brokers that demonstrate high success rates and charge a high upfront fee, you should tread this path carefully to avoid disappointment.
The danger of overpricing is one all business sellers should strive to identify and avoid. There are practical ways this danger can be mitigated by judging the reputation of the business broker and questioning whether the quote is well-priced.
- Previous sales and acquisitions experience
- Sector specialisms and average success rate
- Sales value expectations and growth potential
How can I judge a well-priced business broker fee?
When judging how to sell a business for a fair fee, take a closer look at the business broker you wish to appoint, their reputation and experience. A business broker with professional associations with industry bodies will be subject to scrutiny in the event of misleading customers. Check their background and previous sales data by submitting a request or accessing the information available in the public domain.
Are they experienced in national business sales? Do they understand the local marketplace? What are their success rates? Are previous customers disgruntled or satisfied?
Seek reviews and client testimonials to gauge customer satisfaction rates and uncover any concerns. If the business broker has a track record of overpricing and overpromising, client reviews are likely to raise the alarm bells to ward off new customers.
How much should I pay a business broker to sell my business?
The price you pay way will be determined by how much your business is likely to sell for based on a business valuation and how much a buyer is willing to pay in light of market conditions and competition. The best solution to determine how much you should pay a business broker or if your quote is too expensive is to find out how much similar businesses sold for.
At Selling My Business, we have a vast pool of comparable sales data which is invaluable when calculating how much a business is worth. We offer a free business valuation to business sellers conducted by our in-house team of business valuers. We charge no upfront fee and payment is only requested once we secure a suitable buyer for your business.
Trusted as one of the UK’s leading business transfer agents for 60 years, we are highly experienced and well connected to a network of over 10,000 buyers. For more information, contact a member of the Selling My Business team.