How business brokers get paid

Commission

A broker's main fee is a commission: a percentage of the sale price. Exactly when it becomes payable, at exchange or at settlement, depends on your agreement.

Rates are negotiated between vendor and broker, and vary with the size of the deal, how much marketing the business needs, and how much competition there is for the listing. Treat any figure you are quoted as a starting point for negotiation, not a going rate.

Retainers and marketing fees

Many brokers also charge an upfront fee, separate from commission, to cover preparing the listing and advertising it: photography, an information memorandum, portal listing fees, sometimes a print or trade campaign.

Before you pay one, ask the broker: is it refundable or credited against commission if the business sells? Is it payable even if the business does not sell? What does it actually cover? An agreement that is vague about this gives you nothing to hold the broker to.

Success fees on larger deals

On bigger or more complex sales, close to the boundary between a small business sale and a merger or acquisition, you may see a retainer plus a completion fee, instead of commission alone: a smaller retainer through the process, and a fee at completion, sometimes tiered by value. This is more common the closer a deal sits to the work an M&A adviser does. See what an M&A adviser does differently if your sale involves a company sale, outside investors, or a deal large enough that a broker has suggested bringing one in.

Check the broker's licence

In New South Wales, buying, selling, exchanging or disposing of a business requires a real estate agent licence (or a licence restricted to business agent functions), administered by NSW Fair Trading; this consolidated the former standalone business agent licence on 23 March 2020¹. Other states run their own schemes under different Acts, with their own rules. The full state-by-state list, and how to check a broker's licence, is on choosing a business broker. If your broker cannot tell you which licence they hold, ask before you talk about fees.

What to read in the agency agreement before you sign

• The commission rate, and exactly what it is calculated on (the full sale price, or the price less stock).
• When commission becomes payable: on an unconditional contract, or only on settlement.
• Is commission deducted from the sale proceeds at settlement, or invoiced to you separately?
• The length of the agreement, whether it is exclusive (sole agency) or open, and what happens if you find your own buyer during the term.
• What happens to the fee if the deal falls through after exchange but before settlement.
• Any early termination rights, and any fee for ending the agreement early.

These are terms you negotiate. The agency agreement is the only place they are binding.