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Higher % for low-dollar deals brokered & lower % for higher $ deals?

Should a broker get the same commission percentage, no matter how much the deal ends up being? Shouldn't the % be lower if the $ amount is much higher? For example, 10% of $1M seems OK, but not 10% of $5M or $10M! My representative for this potential deal is not a professional broker, but is a colleague within the same industry & who knows the people who may be interested in purchasing my business, at those $ amounts. They would be purchasing my US Trademark, logo & several LLCs, as part of the deal.

I'm also asking, as part of the deal, to be a highly-paid consultant/advisor for X number of years + travel & expenses. Should the broker also get 10% of those monies too? (The potential buyers know nothing about running my type of business & would need someone to advise them & keep the brand's integrity.)

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Answers (7)
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The BAF Group LLC
MD

Please try again. I was showing a property and probably did not hear the call. My apologies.

Jul 28, 2015
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Don, I tried to call you at the number you list, but could not hear you speaking.

Jul 28, 2015
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The BAF Group LLC
MD

By the way Elizabeth, in what state do you operate, please?

Jul 28, 2015
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The BAF Group LLC
MD

There is nothing wrong in getting paid from both sides - as long as that is disclosed to both sides, in writing. Ideally. As a Broker, I have a problem in accepting payment from both sides, except in very narrow circumstances. And NEVER at full compensation from both sides. Or even full compensation from one side, then getting something additional from the other. That is...what do you call it...greed?

Did you originally contact him about selling, or did they contact him in seeking acquisition candidates? That has a bearing on whether you should pay him at all, in my view. And if he is representing the Buyer, why should you pay him, at all?

None of this is necessarily engraved in stone. ALL of this is highly opinionated, from what I can tell. And I am simply an opinionated Broker - who is not always right! (Okay, 99.999% right...but there are exceptions. I thought I was wrong once, but I was mistaken...)

Call me at 410-715-0700, if you want. I do not want to hurt this person; but I do not want you hurt, either. Fairness is key, from my perspective.

Jul 28, 2015
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Don, as a further comment on your reply to my initial question, you ask, "One of the most fundamental issues is, what is the Broker doing to earn the commission?" and you add, "As Brokers, we would normally work with the Seller to analyze cash flow, direct the positioning of the business for sale, advertise, qualify prospective Buyers, negotiate price and terms, and all of those activities leading up to and through a successful settlement. When there are post settlement terms that are part and parcel of the agreement, we will stay with those activities, thus entitling us to a commission for those post-settlement amounts; ". The only part of that activity he is doing is negotiating price and terms. He has already qualified the prospective buyers, in his other dealings with them over the years. He will not analyze cash flow, direct the positioning of the business for sale, nor publicly advertise it for sale. He has one potential buyer & will just negotiate price and terms. I have already sent him all the promotional info he needed, and he forwarded it to them & they are seriously considering it at this time. He knows very well how to deal with these types of negotiations & get the highest price & the best deal. HIs commission would be solely for his personal contact with the buyer & negotiating the deal. I think he may also get a commission from them, too, as their agent in this deal. If they say no thanks, or do not meet my financial requirements, that's the end of it.

Jul 28, 2015
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Don, Thanks very much for your feed-back & detailed answers ("The commission rate is, in every case of which I am aware, discounted for higher priced business sales."). Your question to me, "If that person is not a Broker, why would you pay professional levels of fees, for an amateur's management of the transaction? " is a good one, & my reply is that he's not an amateur at making business deals (for himself & his business), nor is he a licensed broker. We are colleagues in the same business industry (international entertainment), and his very successful & long-time dealings are in China (he's an American based in L.A., & not of Chinese descent). He has the personal contacts to potential buyers & has done business with these same people over the years.

They asked him recently for a recommendation for a business like mine, that may be for sale, and he highly recommended mine to them, with my enthusiastic OK. We discussed what compensation I would require in order to sell my business to these people, & I said $5-10M, but a low-ball minimum of $1M, with me being hired as consultant/advisor for 2-5 years @ $100K a year, plus expenses & 1st-class travel/lodging, as required. He wants 10% of the total amount the business is sold for. The money would not be paid out over a period of years, but it all would be paid up-front, in full.

Three other companies or people in the same business (in the US) have expressed interest in purchasing my business, but they do not have the resources for million- or muti-million-dollar deals. A year ago, another company in China showed a similar interest, thanks to this man's recommendation, & I was flown to China at their expense & treated like a queen for 10 days, meeting all the top people in government, making my pitch, and given lavish tours of the country, but they couldn't come up with the purchase money, after all. BTW, he accompanied me to China to help me with the potential deal & paid all of his own expenses, plus those of his Chinese assistant/translator, on that trip. This is a second attempt, but with a different, huge privately-owned media business, not a smaller local government group, as the first one was.

He kind of has me over a barrel in this, since if I propose a smaller percentage for higher amounts to him, I fear he may walk, then I'm out of that deal. He is an honest & reliable person & a friend/colleague whom I've known for 5 or 6 years. I need this to be a quiet, private deal, to be publicly announced only when & if it happens, because it would lower my business's value & reputation if it were generally known that it was for sale. I hope this answers your questions & clarifies things a bit!

Jul 28, 2015
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The BAF Group LLC
MD

Well, good Monday morning! You start out the week with a highly complex set of questions.

First and foremost, be advised that any commission is never, or should never be engraved in stone. Commissions are always negotiated between Seller and Broker, and and depends on a large number of issues. One of the most fundamental issues is, what is the Broker doing to earn the commission? As Brokers, we would normally work with the Seller to analyze cash flow, direct the positioning of the business for sale, advertise, qualify prospective Buyers, negotiate price and terms, and all of those activities leading up to and through a successful settlement. When there are post settlement terms that are part and parcel of the agreement, we will stay with those activities, thus entitling us to a commission for those post-settlement amounts; however, when we are not part of that activity, we will sometimes forgo any claim for commission on those amounts.

But that certainly depends upon the nature of the transaction, itself. Suppose the sale was a total of $5 million, and in an effort to avoid paying a Broker's commission, the deal was struck in a way that gave the Seller one dollar at settlement, and $4,999,999 in consulting fees for the next 10 years? Is it fair to only receive a percentage of the $1.00, perhaps after working for a given Client for a year or more? Regardless, we would never claim any commission against travel and expenses for that kind of post-settlement consultation.

The commission rate is, in every case of which I am aware, discounted for higher priced business sales. There is normally a rather set percentage – whatever that percentage rate might be – up to the first million dollars of the sale. After that, frequently at any additional million-dollar milestone, the percentage charged drops appreciably.

The biggest single question – to me, from a personal/professional opinion perspective – is exactly what is your colleague going to do to justify his/her rate of commission? If that person is not a Broker, why would you pay professional levels of fees, for an amateur's management of the transaction? Our own commissions vary, again depending upon exactly what we do for the Client. If we do nothing more than to set up introductions and the Seller handles things from that point forward, we term what we do as a "finder's fee", rather than a full broker's commission.

Obviously, I am getting only a portion of the details from your very brief description, but it does sound to me as though your colleague is way out of line with what he/she is requesting.

Jul 27, 2015

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