There are many fees associated with selling your business, with money going to lawyers, accountants and bankers; however, the greatest value should be placed on marketing your business properly.
While business owners may be reluctant to spend money on marketing, it is one of the most important costs. A good business broker will know how to market your business effectively and will have established networks to market it to, so it’s important to understand what marketing fees are and why they are essential.
Upfront Marketing Fees
Many business brokers ask for different fees in addition to their commission upon sale of the business. The way these fees are structured will differ with each broker, but generally come in the form of an upfront or monthly fee.
The cost of the fee can generally be negotiated and will depend on the value of your business. For instance, $100,000 spent on marketing a $500,000 business will not give a great return on investment, but a business worth $5 million might call for that kind of spending.
Although the cost of marketing typically increases as the value of the business for sale does, once a certain threshold is reached, the cost may stabilise or even begin trending down again. This is because there are limited buyers for $100 million-plus businesses. Brokers with experience in large sales will already have networks in place of people with the capital needed for these sorts of purchases.
Owners of small to medium businesses should expect to pay anywhere between $2,000 and $90,000 depending on the value of the business and the marketing required.
What Do Marketing Fees Cover
Upfront fees generally cover the costs associated with preparing the business for sale and the marketing and advertising of the business. The cost of advertising the business online can be negligible; most brokers have their own listing pages and the cost of listing on general sales pages is not overly high.
However, business brokers will also prepare the Information Memorandum (IM) for the sale of your business. An IM is a briefing document that details the key selling points of your business, including financial information, the market you operate in and staff and property information. A skilled business broker will be able to present this information in a way that attracts buyers without compromising your confidentiality.
After the IM is ready, your business broker will move on to the most labour-intensive part of the process: approaching people who may want to buy your business and discussing the sale with potential sellers who make their interest known.
Your broker should be able to give you specifics on what is covered by their upfront fees.
Your Contribution is Important
There are brokerages who will not take any payment unless they sell your business, and for small business owners used to tightening their belts, this can be an attractive option. However, these brokerages may not have the personal touch of firms that require upfront fees.
It’s important to think of the fees in terms of the value you gain rather than the cost. These fees show your broker that you’re serious about selling and allow them the time to powerfully market your business and find the right buyer.
These fees gain you the experience, knowledge and networks of your broker, increasing the likelihood of a good return on your investment. Remember, most business brokers have been business owners themselves; take advantage of their expertise by allowing them to market your business and following their advice on steps you can take to present your business in its best light.
Selling your business is not a quick process. Most studies show that the average business is on the market for 220 days — far too long for you to be concentrating on selling it yourself while keeping it running smoothly. Focus on continuing to grow your business and giving your broker the best possible business to sell.
