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How do Business Brokers earn their money?

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As mentioned above, business brokers operate much like real estate brokers. Obviously, therefore, their fees are connected to the purchase or sale of a business. However, different business brokers approach their fees in various ways, and it’s important to remember that the fee should be based – at least in part – on your satisfaction with the broker’s performance. Common fee arrangements often include:

• Upfront fee: As we’ll discuss in greater detail below, this type of arrangement is one you’ll want to avoid if at all possible. A fee format of this nature usually results from a broker’s unwillingness to tailor his fee to the specifics of a client’s situation. Instead, the broker appraises your situation and requires the entirety of their fee before he actually performs any work.

• Post-transaction commission: This situation is much like one in which a real estate broker charges a pre-determined commission based upon the eventual sales price of the business you’ve chosen to buy or sell. After the sale has closed the broker receives their percentage from either the buyer or seller, and if owner financing is involved, the broker’s fee may be a part of the loan payment.

• Combination: This is probably the most common fee arrangement, and one with which both buyers and sellers are usually comfortable. After an initial assessment the broker may request a small sum up front, with the remainder of the fee to be paid as a commission. Alternatively, the broker may offer you a choice of a flat fee that isn’t due in its entirety until after the sale or purchase is final. In those cases you can often choose to pay either a small or large initial payment, with a corresponding small or large final payment after the sale closes.

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