In high-pressure sale seminars and events, brokers even take a hefty fee that ranges anywhere between $30K and $75K. Looking at it, many business owners have this question of whether they should determine the value of their business or pay a large upfront fee to a broker for selling their manufacturing business.
Logically, a manufacturing process should perform business valuation as the first step in its sale process. To find whether or not to pay broker fees, you need to get more knowledge about brokerage fees in detail.
What Is The Reason Behind Brokers Charging Upfront Fees From Businesses?
Brokers who charge large upfront fees are those who list any manufacturing company that visits them. The fee that the broker charges is used to pay for two main reasons:
- For organizing seminars that promote a seller business across multiple cities
- To offset the lost business if you do not plan to sell your business through them
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How To Find The Right Broker For The Sale Of Your Business?
A business should look for a broker that charges when you have successfully executed the sales deal and sold the business to another party. That is the right time to pay the broker. Also, you will find several brokers in the industry.
Go with the one who specializes in the manufacturing industry. This is because they will bring qualified and high-quality buyers for your company and help in the best execution of the sales of the company.
How do Business Brokers get Paid?
A business broker is paid in two main forms for selling a business:
- Commission:
This is a percentage fee on the selling price of the business. It is a negotiable fee that is charged before listing your business with a broker. The commission is generally paid at the time of closing the deal.
- Retainer fee
This is a flat-fee that a majority of M&A firms charge in the form of a monthly charge or a one-time upfront payment charge.
How Much Do Brokers Charge?
Different brokers charge their clients differently. Here is an estimate of how do they charge.
Main Street” brokers
- These brokers deal with businesses that have revenue of $1,000,000 or below.
- They charge around 10% on the total business value and 6% on any linked real estate.
- They do not charge any retainer fee but charge a minimum success fee/ commission fee between $10,000 and $20,000.
“Lower Middle Market” brokers
- These brokers handle businesses that have revenue between $1M and $25M.
- They charge a flat commission fee of 4% to 6% on the sale price.
“Middle Market” advisors
- These brokers handle businesses that have revenue of more than $25M.
- They charge a commission fee ranging between 1% and 4% on the sale price.
- A retainer fee is charged between $5,000 and $15,000.
Conclusion
Reputed brokers do not charge an upfront fee from their customers. They very well understand that selling a business is one of the biggest transactions in the life of a business owner. They have spent a lot of money and time building a business.
They should expect results before paying the fee to the broker for his services. So, do some research and find reputed brokers that sell your business at a competitive price and then ask for payment and not vice versa.