According to a recent INC Magazine article, their research indicated that only about 17% of the listings taken by Business Brokers nationwide are actually sold. That's an 83% failure rate!! That's why those that do sell must pay 10-12% commissions to support the wasted time & expenses. The issue is that 83% are delayed in completing a transaction and they've had to postpone their goal of changing careers. If you're going to offer to give 10% to 15% of your selling price away, shouldn't you be sure that you'll be in the 17% of companies that actually sell, rather than just sign a listing agreement?
The majority of business brokerage listing agreements require no front fees or payments but instead collect only on successful performance. According to recent reports, most small business brokerage offices sell only one in six of the businesses listed. Commission rates vary from 10% to 15% of the selling price of the business. Should the seller accept financing terms (accepting a down payment and extending a note to the buyer for the balance of the purchase price) the broker's listing agreement usually calls for payment of the fees due, in full at the time of the sale. If the brokerage finds a buyer who is willing to pay the seller's price, a commission is due-even if the seller should reconsider and refuse to sell the business.
If they say they have a buyer, you should ask what they know about you. Do they have an idea of your sales volume & profitability? Do they know how many locations you have, the number of employees, etc.? Unfortunately, you'll usually discover that they were just out canvassing any business in the area and dropped in to see if you'd sign over 10 to 15% of your equity to them-if they brought you a buyer. This is how most listings arise, but it doesn't mean your chances are as good as if a buyer said, "I'd sure love to buy Smith's Hardware at East Avenue and Main Street."
The Business Brokerage industry is very volatile. Many times a new agent is told, "Here's some brochures, go get 10 listings and then we'll let you work with buyers." Some offices provide little or no training for new agents since 80% won't be around in 90 days. This is not the broker you want handling your sale.
A new Business Brokerage office is probably not the best to list with. Offices come and go and you don't want to be in "limbo" while they're crashing. In many cities, established brokers won't co-broker with new offices until they're in business for a full year. If they willingly share their listings, suggest that you'll be the "listing agency" and give them 60% of their normal commission if they produce a buyer.
Many times business brokers will indicate that they "have a buyer for your business." The more truthful will say "I have a buyer for a business like yours." In essence, they have buyers for retail operations, service companies, restaurants, etc.
Some brokers may be very successful selling small companies with $25,000 to $50,000 down. If your company is valued at $100,000 or more, they may not be the best brokers in town for your needs.
