This article is one of a series that offers insight and guidance into the process of buying selling or valuing a business. Whether you want to buy, sell, or appraise the valuation of a going-concern business, these articles provide specific guidance and references to help you accomplish your goal.
Up-Front Broker Fees for the Business Seller
by Tom West
Up-front fees are always a subject of interest among business brokers. As you will see from the following comments gathered from our last BBP Survey, the up-front fees are all over the place in both the amounts charged and the structure of these fees. We still feel that an up-front fee of one percent of the asking price makes a lot of sense. We also feel that this fee should be offered as a choice along with a contingent success fee. Let the seller decide which works for him or her. Here are just a few of the ways some brokers and intermediaries are dealing with up-front fees:
“Time-based at $125 to $200 per hour.”
“One percent of the value of the business as an administrative monthly fee for the first 12 months of the listing.”
“Minimum charge of $2,000 to $5,000, depends on the seller’s need and desirability of the listing. It is normally taken off the total commission at point of sale.”
“$750 to $5000 per valuation. Depends on the sales of the business we are engaged with.”
“We estimate time to value and package the business for sale. We use $175/hour, usually 4060 hours = $7K10K. If, for example, it's $10K, we ask for $5K upon agreement and the balance due with the deliverables. The up-front fee is usually credited toward the retainer at closing.”
“One percent of the asking price as a retainer applied to a reduced fee of 8% versus a fee of 10% with no retainer.”
“$1000 retainer not applied to 10% success fee or $2500 retainer that is applied toward 10% success fee.”
“If a custom marketing plan is needed, then an estimate of the costs is computed. The client will pay 75% or more of the costs, which are then available as a credit to the otherwise due brokerage commission.”
“If the seller demands us to sell it and we do not want the assignment, we may charge an up-front fee to cover the ads, etc. minimum of $10,000.”
“Commitment fee upon signing of listing agreement, plus a monthly marketing fee.”
“Retainer Fee, usually $5,000 per month. Credited against success fee at closing.”
“Varies on size of company and whether statements are audited or reviewed by outside CPA firm. Ranges from $3,900 to $9,900.”
“$4500 non-refundable retainer, credited against commission at closing.”
“$5,000 commitment fee regardless of size. Occasionally, for a very small business, I will charge $1,500.”
“Approximately 1% of expected or estimated asking pricing.”
“Based on size of business: for main street$500; for $1M to $5M$5,000; over $5M$9500.”
“It is normally based on a one-time unusual cost, such as listing a business in a specific multi-list site that I do not normally participate in on a regular basis.”
“Approximately 10 to 12% of the estimated success fee.”
“Only when the listing cannot be obtained on reasonable terms. Then, maybe a marketing fee to cover initial expenses, plus a standard commission upon closing.”
“A small amount, e.g., $1000, to be applied against the success fee.”
“One half of one percent of last year’s sales. Example: sales of $5,000,000 would be a fee of $25,000.
“$500.00 to $1,000.00 for package preparation fee.”
“1% of listed price paid at listing reduces commission from 12% to 8%.”
“50% upfront, then 50% upon delivery of the valuation report.”
“5% of the expected fee to be applied against commission, due upon closing.”
“Time and materials @ $100 per hour where the potential listing is such that it requires a ‘book’ type information package." Fee is deemed fully earned upon completion of first copy.”
“$250 administrative fee; if the business sells, it is refunded.”
About the Author
||Mr. Tom West is the editor/publisher of The Business Broker, a monthly newsletter for the business brokerage field. He has written or co-written numerous books including the The Business Reference and Pricing Guide and The Resource Handbook for Business Brokers. He is a founder, past president, and former executive director of the International Business Brokers Association (IBBA). He is a frequent lecturer and seminar leader on all aspects of buying, selling, or appraising a business. Mr. West is probably the most knowledgeable individual in the country today concerning the issues of buying or selling small to mid-sized businesses.
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