How much should I agree to a business broker? What is the right commission?
The answer is that there is no right commission, it is based on the size of the sale. Many business brokers charge 10%-15% regardless of the size of the sale and that is just wrong. 10% is an appropriate commission on sales under several million dollars. There is a different formula for the sale of larger businesses.
If you a business that is going to sell for $10 million or more, the formula is: 6% of the first $20 million, 5% of the next $20 million and 4% thereafter.
If you have a business that is going to sell for $100 million – $300 million or more, then it is a negotiated commission. It depends on many, many factors. We have seen commissions as low as 2% and as high as 4%. It depends on the complexity of the sale, the sophistication of the seller and whether it requires a world-wide search.
Finally, there is an old-fashioned scale, called the Lehman Scale. This was initiated in the 1960’s, when there was a Lehman Brothers in the industry. That old-fashioned scale was 5% of the first million dollars, 4% of the next million dollars, 3% of the next million dollars, 2% of the next million dollars and 1% thereafter. Just as things have changed from the 1960’s, that old fashioned scale is no longer in vogue and not appropriate and not realistic and not used by any serious and sensible business broker. Any variation of the Lehman Scale is still old fashioned. There is no more Lehman brothers and to talk about it is a waste of time for you.
New York Private Equity Group is a leading boutique Mergers and Acquisitions firm, founded in 1993, quickly becoming America’s leader in lower to middle market acquisitions.
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