Business owners interested in selling their companies often turn to business brokers, investment banks, and other intermediaries for help. These middlemen can provide valuable advice and can guide you through the process, but in return they charge substantial fees. If you are considering enlisting a broker or other intermediary to help you sell your company, here are five important questions to ask them:
What is your fee structure? This typically depends on the size of the company. Brokers typically charge smaller, main street businesses with under $1MM in revenue a commission of about 8-12%. Larger firms sometime charge commissions based on the “Double Lehman” formula — 10% on the first million, 8% on the second, 6% on the third, 4% on the fourth, and 2% on the remainder. This means that a company that sells for $8 million would be charged $360,000 in brokerage fees, a 4.5% commission. There is usually a minimum commission, and some firms charge a retainer.
Who are your references? A professional, experienced business broker should have testimonials and references that you should be able to call.
How many listings do you have? The average business broker will have 15-20 listings at any given time. If the broker is representing too few listings, it could be a sign that they aren't experienced, motivated or capable. Conversely, if the broker represents too many, you run the risk that your sale may not receive the attention it deserves.
What do you know about my business? Brokers often have expertise in certain industries. Those that lack expertise should manifest an interest in learning about your company and your situation so they can negotiate a deal that accommodates your desired financial and non-financial outcomes.
How do we maintain alignment of interests? Sure, both you and your broker will want to sell your company. But you should do your best to determine whether the broker is interested in selling your company at the right price and to the right buyer. The more businesses a broker sells, the more commissions that broker earns — variations in sales price and quality of buyers will have little impact on the livelihood of a broker.
Eagle Peak Capital Partners does not require you to hire a broker to sell your company, allowing you to retain more of the sales price. While you would benefit from using your own accountant and legal counsel, we are able to guide you through the process, enlisting the help of an experienced team of investors and professions. For more information, please send me an e-mail at rknauer@eaglepeakcap.com, and you can also view our guide to the business transaction process here.
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