Business Brokers Fees
Tri Source Consulting - Commissioning Structure
As business brokers it is required by law that agents representing Companies for sale in the market to be registered at the Estate Agency Affairs Board. When you consider your choice broker to represent your business always make sure your agent is properly registered which would also imply that he or she is properly qualified and regulated.
Commissions due to Business Brokers can therefore be compared to that of selling property. NO fees should be paid in advance and the broker should be remunerated ON the Effective Transfer Date and on successful conclusion of a detailed sales agreement and all the suspensive conditions as defined in the sales agreement properly met.
Brokers could offer alternative services to clients such as valuation, business plans, preparation for sales etc. but it is my experience that brokers requesting a large up-front payment often do not have much success concluding a successful transaction for the client.
Large franchise Business Broking organisations often demand a 10% commission on the transaction. At Tri Source Consulting commission required will never be higher than 8% and could under some circumstances be less that 1%. The actual commission percentage is part of the negotiation process when mandating and listing the business.
It is possible to negotiate a fixed nominal success fee (not percentage but you will find that this is still in line with the percentage commission that applies. The process however sometimes becomes extremely creative which could sometimes means that a product, division, working capital or even some customers are excluded from the transaction which means the fixed fee becomes a larger percentage of the total transaction value.
Factors that influence the Business Broker Fees Percentage:
There are chiefly 4 factors that influence the commission structure which are listed below.
Size of the transaction:
The size is perhaps the largest influencing factor and the rule is that the smaller the transaction value the higher the commission percentage. A two million Rand and lower transaction will therefore always be 8% which could then decrease when the value is larger.
Preparation of the Company for Sale:
When the Seller has his Annual Financials Statements, Management accounts, Asset Register and other important documentation ready when the mandating process starts it will make it easier to negotiate a competitive rate.
Price and Price Expectation:
A broker can place a business on the market at any price. The market is however very informed and act in a logical manner when it comes to prices paid for companies. Any seller with a price expectation higher than the norm therefore places the burden on the broker to achieve an “above normal” price which by implication means a lot more work. It is easier to offer a seller with a realistic price expectation a discount on the commission.
The inherent risk factors in the process of selling a company could be understood already during the mandating process. Companies with a narrow customer, supplier or product base, dependence on specific individuals in the company- especially the seller, negative sales and profit trends to name but a few are all risk factors that could influence the commission rate.