3 minute read

When Can You Negotiate a Reduced Broker Fee for the Sale of your Business?

Selling a business is a complicated process full of possible pitfalls and problems that can make or break a transaction. For that reason, most brokers charge what may seem to be high fees (typically much higher than residential real estate). This is usually well warranted due to the risk of the business not selling at all - but is there ever a time you can ask for a reduction in fees?

When To Negotiate a Reduced Broker Fee

First, of course, you can always ask. There is always a discount broker that will attempt to sell your business for a reduced fee. The question I would ask myself is, is this an occasion where you want to use a discount broker? I would always be leery of a broker who is quick to reduce their fee, but there are some occasions where you can fairly ask for a reduction.

If You Already Have a Buyer

In the case where you already have a buyer, the broker may be willing to reduce the fee for that specific buyer. Keep in mind that many times, the buyer you think will buy the business does not work out. In that case, it really isn't fair to ask for a reduction for other buyers they may bring to you. Another instance is where an employee or family member is purchasing the business and you really need a middleman and the expertise of a broker to help guide you through the transaction. Again, some brokers may offer a reduced fee for this.

Sliding Scale for Larger Businesses

Many experienced, competent brokers are already giving you a discount, as fees are typically reduced in relation to the price. In general, the smaller the transaction, the higher the commission as a percentage of the sale. If your business is worth more than $1 Million, most brokers already reduce their fees and many charge on a sliding scale.

For example, it's common for business brokers to structure fees such that the commission is around 10% of the first million, then 8% of the second million, and so on to a 2% floor. In M&A parlance, this is called the "Double Lehman Scale."

Negotiate Up-front Broker Fees for Reduced Commission Percentages

Some brokers will reduce their fees on the back end but charge up-front fees. Up-front fees are fairly typical of larger transactions. If you are paying an up-front fee, make sure you know what you are getting for the fee and make sure you are dealing with a reputable, licensed broker. Most states require at least a real estate license to sell a business.

Regardless of fees, make sure you have the appropriate type of broker and to check their experience and references. Most successful brokers have clients that will be happy to share their experience with you. If your business value is below $2M, a reputable, experienced business brokerage is a great fit. If it is between $2-50M, you should talk to an M&A firm that specializes in the lower middle market.

The bottom line is this is one of the most critical and important decisions you will make as a business owner. Online business-for-sale marketplaces are great sources to see what types of listings a broker has and what size transactions they handle. Do your research and make sure you have the right broker for your business. The knowledge a reputable and experienced broker brings to the table will save you much more money than it will cost you.

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