| One of the first questions business sellers ask me | | | | intermediaries generally help in the business |
| as a business broker in Toronto, Ontario is "what | | | | evaluation and provide advice to business sellers |
| are your fees?" Business owners contemplating | | | | to maximize the business value. Some |
| the sale of their companies generally consider fee | | | | intermediaries prepare a short business summery |
| structure a very important criterion for the | | | | of a few pages with summarized business |
| selection of a broker to work with. The business | | | | information and industry analysis. Some but not all |
| brokerage/Intermediation/ Mergers and acquisition | | | | of these intermediaries charge a non-refundable |
| markets offer a variety of fee structures | | | | retainer between $2,000 and $20,000. The |
| depending on the size of the transaction and the | | | | success fee/ commission charged on closing of |
| nature of the services offered. | | | | transactions is generally 10% of the first million |
| Businesses of less than $100,000 in value generally | | | | dollars and 1% to 5% of the balance. This |
| sell through Real Estate Agents who sell mostly | | | | segment of the brokerage industry has been |
| real estate and a few businesses on the side per | | | | impacted the most by the Internet and the |
| year. The service offered is merely putting an ad | | | | profession has been open to new entrants who |
| in MLS and showing potential buyers the business. | | | | do not have deep connections within traditional |
| The seller does most of the selling and answers | | | | industry players. Business listings are simply |
| buyers' questions. The Real Estate salesperson | | | | advertised through large business for sale |
| charges a flat fee of $10,000 or 10% of the | | | | websites and generally attract a large enough pool |
| value of the transaction on closing. A real estate | | | | of buyers to locate a serious buyer. |
| agent can hardly make living selling businesses only | | | | Businesses between $5M and $50M in value are |
| because a large percentage (over 90%) of these | | | | sold through Mergers and Acquisitions |
| small businesses never sell. | | | | Intermediaries/Advisors. Those professionals |
| Businesses between $100,000 and $1M in value | | | | generally process more advanced finance skills |
| generally sell through business brokers | | | | and are capable of detailed business valuations. |
| Intermediaries. In the province of Ontario, Canada | | | | They also offer more extensive sales package |
| and some US states, business intermediaries need | | | | for the businesses to be sold. The sales package |
| to be real estate licensed. These brokers tend to | | | | involves an extensive interview with the business |
| offer a wider range of services including, business | | | | owner and some key employees and a |
| valuation, exit strategy consulting, preparation of a | | | | determination of the key success factors for the |
| sales package or an offering memorandum, buyer | | | | business, a detailed industry analysis and potential |
| screening and confidential marketing etc. Their | | | | synergies and/or opportunities for expansion for |
| fees generally range from 8% to 12% of the | | | | potential buyers. Because the sales package |
| price of the transaction and is generally paid on | | | | involves a large number of hours of work, most |
| closing. Some intermediaries charge a non | | | | M&A (Mergers and Acquisitions) |
| refundable retainer between $1000 at $10,000 | | | | Intermediaries charge a non-refundable retainer |
| after signing the listing agreement. Businesses of | | | | between $10,000 and $50,000. Charging a retainer |
| these sizes generally have higher probabilities of | | | | also insures that only serious business sellers will |
| selling because they are more professionally | | | | list their businesses. While this practice tends to |
| prepared for the sale. Because of the absence or | | | | reduce the number of potential listings that an |
| the small amount of retainer charged, the number | | | | Intermediary will have at a certain time, it does |
| of sellers changing their minds about selling in the | | | | insure a much higher quality of listings, meaning |
| middle of the sale process tends to be very high. | | | | motivated sellers and realistic prices. On top of |
| Some sellers tend to simply taste the waters to | | | | the retainer, these intermediaries charge a |
| see how much their businesses are worth with no | | | | success fee using the Lehman or Double Lehman |
| intention of selling. This ends-up costing a lot of | | | | formulas. These formulas consist of charging a |
| time to business intermediaries. | | | | declining percentage on each million dollar of value |
| Businesses between $1M and $5M in value tend to | | | | ( 5% of first million + 4% of the second million + |
| sell through business brokers/Intermediaries who | | | | 3% of the third million + 2% of the fourth million |
| specialize in the lower middle market segment. | | | | + 1% of any balance) or (5% for first and |
| These are more sophisticated business brokers | | | | second million + 4% for third and fourth million + |
| who generally have a good understanding of | | | | 3% of the balance). |
| Finance and Business Strategy and have the | | | | Businesses with over $50M in value generally sell |
| necessary people/sales skills to help in the long | | | | through medium size and large investment banks |
| and tedious negotiation process. These | | | | and have more complicated fee structures. |