I run a small manufacturing outfit with about 30 employees. Revenue around $4M, cash flow maybe $700k. Thinking about selling in the next year or two. Every broker I've talked to wants 8-10% commission. On a $3M sale that's $240k-$300k. What exactly are they doing to justify that? I get marketing, but that seems like a lot for a few months of work.
Brokers
What do brokers actually do to earn that massive commission?
The pitch is always 'we have buyers.' But in my experience the broker mostly just lists on BizBuySell and waits. Maybe they make a few calls. I sold a service business two years ago and honestly I did most of the buyer screening myself. The broker handled fhe NDA paperwork. Not wroth 10%.
That's a cynical take. A good broker does more than list. They normalize your financials, prepare a proper CIM, handle the initial buyer calls so you don't waste time, and manage the negotiation. If you've never sold before, that's valuable. Whether it's worth $300k is a different question.
Also they take on the risk. They spend money on marketing and time on tire-kickers. If it doesn't sell, they get nothing. That's why the commission is high on the ones that do close.
Fair point. But most listing agreements are 6-12 months exclusive. So you're locked in either way.
Right, and good luck getting out of that if they underperform. I had a clause that let me terminate after 6 months if they didn't hit certain milestones. Ended up using it
What size business are we talking? For under $2M, commissions tend to be higher percentage-wise because the fixed work is the same. For $3-5M, 8-10% seems standard but you can sometimes negotiate down to 6-7% if you have clean books and are easy to work with.
Get a business valuation first. You might be assuming a $3M sale but the market could be lower. Also consider an M&A advisor over a business broker. Different fee structures, sometimes monthly retainers instead of pure commission.
M&A advisors usually want a retainer plus a smaller success fee. If you you're not sure you'll sell, a broker on pure commission shifts more risk to them.
Something nobody mentioned: the broker's real job is managing the emotional rollercoaster. Buyers walk, deals fall apart at the 11th hour, due diligence drag on. Having someone else field those calls so you can keep running the business is underrated. That said, I'd push for 6% and see what happens.
Just negotiate. Tell them you're talking to multiple brokers. The fee is always negotiable.
Saltwater_kid has it right. I got mine down to 7% by playing two brokers against each other. But be careful, the one you don't pick might badmouth your business to buyers. Small industry.
Interesting range of experiences. I haven't thought about M&A advisors vs brokers. The emotional management angle is something I hadn't considered either. I might get a valuation first before talking to anyone else.