Selling your Small or Medium Sized Business
What Should I Pay a Corporate (or Business) Adviser?
At its’ most simplistic level you should pay a rate commensurate with the likely sale proceeds, the degree of difficulty in achieving the right sale price, and the necessary skills and time commitment the adviser will need to achieve that result.
There can be false economy in nailing an adviser down too much, knowing what a fair rate is will help you negotiate an appropriate fee.
So what should you pay if you are selling a business valued between $3m and $100m? The table below provides broad guidance.
Useful points highlighted by the table include:
- The adviser fee is a significant cost, it is important that you select an appropriate adviser and pay an appropriate fee.
- The adviser fee increases as the business sale price rises.
- Fees are not standard; some advisers charge $400k (4%) for a $10M sale, others may charge $600k (6%).
A higher fee does not guarantee a better service.
The scope of work, skill required and time necessary on each business sale will be different and therefore fee levels will vary for businesses with similar values.
You might think that the adviser fee would increase in direct relation to the deal size but this is not strictly true. There is a minimum fee that will need to be paid in order to engage a quality adviser, and therefore, as sale price increases fees as a % of sale price will decrease.
Negotiating a good deal with the Corporate Adviser to Sell your Small or Medium Sized Business
The good news for you the vendor is that only a modest portion of the total fee should be payable if the sale does not proceed. Only 20-40% of the total fee should be payable in retainers and ideally these will be rebated against success fees. Thus while the adviser gets a large sum if your business sells, they will only get retainer fees if your business fails to sell.
As a seller you are benefiting from a form of pooling, where the successful sellers are compensating for the unsuccessful sellers in terms of adviser fees charged. The adviser is investing and betting on their expertise in a way you wish your flat fee charging accountant and lawyer would.
Advisers spend substantial time soliciting and bidding on work, whereas prospective sellers like you rarely sell businesses. Fee negotiation is therefore a game where the adviser has a knowledge advantage but you, the prospective vendor, have the power.
Some advisers decide if they can win every 2nd bid at 6% that is better than winning 3 out of 4 at 3% (and the maths and workload agrees with them). Fees charged are not standard.
Business Brokers can charge up to 10% on $1M sale and advisers 6% on a $20M sale. We know of a $6M EBIT (Earnings before Interest and Tax) business that sold for a terrible price of $12M yet the business broker took a hefty 7% fee.
While a very low fee may ensure poor service, a very high fee does not guarantee excellent service or results. Be wary and speak to a few referees before you make your appointment.
To maximise the sale price for your business, pay an appropriate fee to a well-chosen adviser. To help you achieve this goal we will be publishing a number of articles including: