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.

This was a synopsis... to read the full article... click here.

Hard Times?

Now may actually be a good time to sell a business.

Given the state of the financial markets and general economy, now may seem like an unlikely time to sell a company. But selling in the current market can actually be less challenging than you think -- and may even provide benefits you haven't considered.

Determining whether to sell is always a difficult and complex decision, involving many considerations specific to your plans and business. For example, how urgent is your exit plan and how much do you hope to realize from the sale? Although the current economic environment may factor into your decision, it shouldn’t be your primary consideration.

To read the full article... click here.

Purchase a Business With Your 401K!

By: David Gorman (bio)
Senior Business Broker, Sunbelt Indiana

Why? Because there are NO penalties, that’s right. This 401k Rollover program lets you use your 401k and other retirement funds to invest in a business – TAX AND PENALTY FREE. This is a safe, proven plan based on long standing provisions of the Internal Revenue Service (IRC § 6501). By using pre-tax retirement dollars to fund your business, you gain equity in your business and improve cash flow from day one. Use the funds to receive a salary during startup, while accelerating profitability by eliminating or reducing interest or debt. Application, creation, and funding is fast; typically (2-3 weeks or less). You can even set aside tax deductible retirement savings up to $200,000/yr.

The benefits of using your 401k:
-Minimize debt
-Enhance cash flow
-Stimulate business growth
-Build equity
-Take full advantage of tax benefits

SOLD A BUSINESS!

Congrats to our Business Broker, Larry Battershell,
on the sale of the Danville Pizza King...

Capital Gains Tax Rate change, what it can mean for businesses selling this year...

New Stimulus Package for Businesses...
By: John Kielich, Managing Director, Kolb + Co.
LeAnne Foster, Business Analyst, Kolb + Co.

No, you did not miss an eight million dollar first-time-business-buyer tax incentive or a sales tax break. However, there currently is a window of opportunity for businesses in regard to Federal Capital Gains Tax. The current Federal Capital Gains Tax rate of 15 percent is due to sunset at the end of 2010. How high it goes starting in 2011 is anyone's guess at this time, but as discussed and illustrated below, even an increase to 25 percent should provide a business owner the needed stimulus to strongly consider a sale or partial sale in 2010.

To read the rest of this article, and see an example spelled out in dollars... click here.

Personal Goodwill: Who Owns It?

Personal Goodwill has always been a fascinating subject, impacting the sale of many small to medium-sized businesses – and possibly even larger companies. How is personal goodwill developed? An individual starts a business and, during the process, builds one or more of the following:
• A positive personal reputation
• A personal relationship with many of the largest customers and/or suppliers
• Company products, publications, etc., as the sole author, designer, or inventor

The creation of personal goodwill occurs far beyond just customers and suppliers. Over the years, personal goodwill has been established through relationships with tax advisors, doctors, dentists, attorneys, and other personal service providers. While these relationships are wonderful benefits, they are, unfortunately, non-transferable. There is an old saying: In businesses built around personal goodwill, the goodwill goes home at night.

It can be difficult to sell a business, regardless of size, where personal goodwill plays an integral role in the business’ success. The larger the business, the less likely that one person holds the key to its profitability. In small to medium-sized businesses, personal goodwill can be a crucial ingredient...

to read the full article... click here.

4 Keys to Selling In a Buyer's Market

Don't leave money on the table that could have been in your pocket.

By Mike Handelsman
Entrepreneur.com, April 13, 2010

"This is a great article for anyone considering selling their business in this economy. It is possible to sell, but the better prepared you are...the less chance you will leave cash at the table... and that's where we come in." says Ralana D. Shelley, Certified Business Intermediary at Sunbelt Indiana Business Resource.

The business-for-sale market has been slowly recovering for the past few quarters, and the first quarter of 2010 was no different. According to industry data, the number of closed business-for-sale transactions rose slightly last quarter, by 0.3 percent, as compared to the first quarter of 2009.

Although this is a relatively small increase, it's a positive sign, especially given the deep declines in closed deals in the past two years. And evidence of a turnaround is more apparent when comparing Q1 2010 data to the prior quarter, which shows a healthy 6.3 percent increase in transaction volume.

While deal volume is up, there's still downward pressure on the business-for-sale listing prices... the data suggests that it's still a buyer's market out there. This is the result of a few factors, most notalby weaker financials for selling companies, a lack of confidence from buyers that the economy will improve quickly, and a dearth of capital available to those who want to buy a business.

For business owners looking to sell in this market, there are things you can do to improve the odds of closing the deal and to ensure you receive a good price for your business. These tips will get you started.

1. Price your business right.
2. Remember you're still running a business.
3. Be willing to share some of the buyer's burden.
4. Offer a roadmap to success.

It's a buyer's market out there, but that's not necessarily a reason to hold off on selling. Business owners who get it right are still closing deals at prices that can satisfy all of the parties involved in the transaction.

* This is a synopsis...to read the full article... click here.