How do Business Broker and M&A Commissions Work?

Here is a great article answering the age old question, what and how does the Broker get paid.

By: Ney Grant
AllBusiness.com

Business Brokerage
There is no law or regulation that sets pricing, but business brokers typically charge a 10% commission (also called a "success fee") on the value of the business and 6% on any associated real estate. The exceptions are gas stations, grocery stores and hotels which can be less. We have heard of some brokers charging 12% and others readily dropping a few points in order to get a deal, but most hold firm at 10%. If another broker is involved in finding a buyer, the fee is split between the listing-side broker and the sell-side broker.

M&A Commissions
It is standard practice to provide a discount above a $1 million selling price, and many M&A firms will say they use the Lehman Scale although in reality they probably use the Double Lehman Scale. The Double Lehman Scale pays a commission of 10% on the first million, 8% on the second million, 6% on the third million on down to 4% for the remainder.

As a general rule, business brokers don’t charge an upfront fee, while M&A advisors do. It makes sense too. A business broker is operating essentially alone much like a real estate agent, while an M&A firm applies a team of writers, analysts and dealmakers on your project and also must pay for a marketing campaign.

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