Additional information on each question from 50 Questions to Ask a Business Broker When Selling a Business
Q26. How do you manage negotiations with buyers?
Why should you ask this?
A broker’s negotiation skills are important to boosting your business’s worth. Sales success and timing depend heavily on their talent for productive discussions. Finding out how they deal with offers and counter-offers, and whether they’re usually the ones to make the first move, or prefer to respond to others, can help give some insight on how they address negotiations.
It’s important to have a broker who can effectively negotiate on your behalf, to get the best price and terms for your business sale. Finding out how they approach negotiations and manage buyer expectations for the business helps to make sure that your interests are being served in the best way possible.
Sales negotiation isn’t just about price, it also involves payment structures (cash vs seller financing), non-compete agreements, or other clauses. Asking for examples of how they’ve handled past negotiations and resolved any conflicts can give you a better sense of their approach and effectiveness. Look for a broker who can advocate for your best interests while ensuring the deal progresses. They should understand the buyer’s interests as well and structure the deal to serve both parties as much as possible.
Q27. What are your commission rates and fee structure?
Why should you ask this?
To determine your expenses, you must know the broker’s commission rate and fee structure. A commission-only system is used by many brokers. Broker commissions are typically 5–10% of the final sale price, however, this percentage is subject to change. I have also seen commission rates range up to 12% and sometimes more, depending on elements such as the size and complexity of the transaction. While more complex sales may involve higher rates, typically rates usually do cap around 10-12% for very small businesses. It’s important to clarify the fee structure right upfront, so you don’t get caught by surprise later on.
Some brokers use a tiered commission structure, where the percentage decreases as the sale price increases. Knowing these details right off the bat helps you understand the total cost of the broker’s services and ensures the rates align with your expectations. Some brokers ask for money upfront, since they’re not certain they can sell your business, but others only charge if they sell it, as they’re very selective about which businesses they work with. Brokers who charge primarily success fees may have an incentive structure better aligned with the seller’s interests.
Q28. Are there any upfront fees?
Why should you ask this?
Upfront service fees may apply with some brokers. You should clarify if the fees are included in the final commission to plan your budget effectively. Ask if the broker expects a retainer or upfront payment to work with you. Other upfront fees may pay for services such as formal business valuations or marketing materials like confidential information memorandums and teaser documents.
Make sure to ask the broker if they require any initial payments or retainers, and whether those are refundable. Understanding these fees in advance will help you know how much you’ll need to invest upfront before the sale is confirmed. You can also ask the broker whether they will credit this retainer toward the commission if the sale closes successfully. Clarifying these details upfront ensures you know the full scope of financial commitments before proceeding with the sale.
Q29. Do you charge a minimum fee if the sale price is lower than expected?
Why should you ask this?
You need to clarify whether the broker charges a minimum fee if your business sells for less than expected. This helps you avoid unexpected financial surprises.
Some brokers have a minimum fee that applies regardless of the final sale price. This can affect your net proceeds, particularly if market conditions lead to a lower-than-expected sale. For example, a broker may charge a 10% commission but have a minimum fee of $20,000. This means if the sale price falls below $200,000, you would still owe the broker $20,000.
Q30. How is the commission calculated (e.g., a percentage of the sale price)?
Why should you ask this?
It’s important to understand how the broker calculates the commission to accurately estimate your net proceeds after the sale is finished.
Brokers commonly determine their commission based on a percentage of the gross sale price, this includes all assets sold (real estate, equipment, and intellectual property etc.). The commission structure might vary depending on factors like the deal’s structure (e.g., cash, stock, or earn-outs).
If the sale involves contingencies like earn-outs, clarify in detail how the broker’s commission applies to future payments. Some brokers may charge their full commission upfront based on the total sale price, while others may tie their commission to each payment made as part of the earn-out.
