Business broker, M&A advisor, or selling it yourself
Brokers and M&A advisors do different jobs and are paid in different ways, and some owners handle the sale themselves. Here is what each route does and costs, with the questions to ask before you sign.
Selling it yourself costs only your time and usually reaches one buyer through a public listing. A business broker lists the business on marketplaces for a percentage on closing, often around ten percent for small businesses. An M&A advisor approaches buyers directly, traditionally for a retainer plus a success fee. InvestDeal charges five percent of the price, on closing only.
Three routes
You can sell a business yourself, or you can pay someone to sell it, and that someone is usually a business broker or an M&A advisor. The two professions do different work and reach different buyers. They are also paid in different ways, which shapes what each one works towards.
Selling it yourself
You put the business on a listings site or tell people you know. From then on you handle every enquiry yourself, including who sees the books and how the price is negotiated. The cost is your time, and it suits a very small business with an obvious buyer, such as a manager who wants to own it or a family member.
The other costs are harder to see. A listing with your name on it reaches your staff and your competitors before you have a buyer, which is why selling a business privately takes a different method. Most enquiries from a public listing come from people who are only curious. The buyer across the table has usually done this several times, while for you it is the first.
The usual result is a single buyer and a single number. You are left to guess whether it was the right one.
A business broker
Brokers list businesses, typically ones priced under $2 million, on the marketplaces buyers browse, then screen the enquiries and manage the process to closing. Most are paid a percentage of the price on closing, commonly around ten percent for small businesses. Some also charge a listing fee up front.
A good broker filters out the casual enquiries and knows the paperwork. The limit lies in the model. A broker markets the business to the buyers who come to the listing, so a private matter goes through a public process, and it reaches whoever is browsing that month. The buyer who would pay most is often a competitor or an investor who waits to be approached.
An M&A advisor
Advisors run a confidential process, usually for larger businesses. They value the business and prepare the materials, then approach chosen buyers directly under a non-disclosure agreement. With several buyers interested at once, the advisor runs a competitive process and negotiates the letter of intent and the purchase agreement.
Traditionally the advisor charged a retainer or a monthly work fee as well as a success fee on closing, and many firms credit the retainer against the success fee. Because the work was costly to do by hand, the service was kept for businesses with several million of earnings. That is the part that has changed.
What each one is paid, and why it matters
| Route | Typical cost | Paid when |
|---|---|---|
| Yourself | Your time, plus a lawyer and an accountant | As you go |
| Business broker | A percentage of the price, sometimes with a listing fee | Mostly on closing |
| Traditional M&A advisor | A retainer or monthly fee, plus a success fee | The retainer as you go, the success fee on closing |
| InvestDeal | Five percent of the sale price | On closing only |
How an advisor is paid tells you what they are working towards. A fee on closing rewards the price you get. A retainer pays for the advisor’s time, and you owe it whichever way the sale goes.
Percentages tend to fall as prices rise, so compare fees in dollars at the price you expect. Take, as an illustration, a business that sells for $2 million: each percentage point of fee is $20,000, and a five percent fee comes to $100,000. On a larger sale a traditional advisor’s success fee may be below five percent, so add any retainer to it before you compare.
The questions to ask anyone you are considering
- Will my business be listed by name anywhere? If it will, ask who will see the listing and what it tells them.
- How will you find buyers, and how many will you approach? Ask for a number, along with the kinds of buyer on the list.
- What do I pay if the business stays unsold? Some firms charge a listing fee or a retainer in that case and some charge zero, so find out which before you sign.
- Who represents the buyer? An intermediary paid by both sides has a conflict on every term you negotiate.
- What do you need from me before you can tell me what it is worth? If the answer is a meeting and a retainer, you are committing before you know where you stand.
Where this firm sits
InvestDeal is an M&A advisory firm and follows the advisor’s process. The work starts with a valuation and preparation. Buyers are then approached one at a time under non-disclosure, and the competition between them carries through the negotiation to closing. The business stays off every listing site, and its name goes only to a buyer you approve.
Technology is what changes the cost. The free valuation is anonymous, and the preparation runs on sale tools you can use before you have spoken to anyone. The fee is five percent of the sale price, due on closing, and it is the only payment you make, so you pay only if the business sells. How to sell a business in Canada sets out the process from the first step.
Questions owners ask
- How much does a business broker charge in Canada?
- Most brokers charge a percentage of the sale price on closing, often around ten percent for businesses under a few million dollars, and some add a listing fee up front. The percentage usually falls as the price rises. Ask what you owe if the business stays unsold.
- What is the difference between a business broker and an M&A advisor?
- A broker markets a listing to the buyers who come to it. An advisor picks out buyers and approaches them directly under non-disclosure, then runs a competitive process and negotiates the terms. Brokers typically handle smaller businesses, and advisors traditionally handled larger ones because the process was costly to run by hand.
- Can I sell my business myself instead of using a broker?
- You can, and for a very small business with an obvious buyer it can be the right choice. For a larger business you give up the competition between several buyers, and you negotiate alone against someone who has usually done it before.