Quick take
- A broker's fee is usually paid at closing from the sale proceeds
- Debt payoff, attorney and CPA fees also come out, so plan on net not gross
- Taxes on the gain are often a bigger cost than the commission
- Ask for the fee in writing, and be wary of long listing terms
How the Fee Usually Works
Most brokers charge a success fee, which means you pay when the sale closes. It is normally taken from the proceeds at closing, so you do not write a separate check.
Ask for the fee in writing before you sign anything. A range is fine early on, but the agreement should state it.
What Else Comes Out
The broker is not the only deduction. Business debt is paid off at closing, since most deals are cash free and debt free. Attorney and CPA fees come out too.
Add escrow costs and any amounts held back to cover claims after closing. When you plan your next chapter, use the net figure, not the headline price.
Why Owners Pay It
Nobody likes writing a large check. The fair question is whether the sale would have happened without help, in the time you wanted, at the price you wanted. Many do not close at all, or close at a lower multiple, or fall apart in diligence.
A broker also keeps the sale confidential, screens buyers and handles the long list of documents buyers request.
Taxes Are the Bigger Number
For most sellers, the tax on the gain is a larger cost than the commission. Tax depends on your basis, how the deal is structured and how the price is split across assets. That is why a CPA belongs on the team early. See price allocation.
Questions to Ask a Broker
- How many years have you sold businesses, and is it your full time work?
- How do you market beyond the big listing websites?
- What is your fee, and when is it paid?
- What share of your listings close, and how do you count that?
- How long is the listing agreement?
Agreement Terms to Watch
A single exclusive agreement is normal. Splitting the listing among several brokers can mean paying two commissions. Terms of under a year are typical, while a five year term is a warning sign.
Ask what happens if you find the buyer yourself, and what the broker earns in that case.
Selling Without a Broker
You can try. It is hard to keep the sale confidential, handle several buyers and negotiate against professionals who have bought before. With a single buyer you also lose bargaining strength.
If an offer arrives out of the blue, get a valuation before agreeing to exclusivity. See how buyers are screened for the steps that protect you.
Want to know your range? Request a free private valuation.