Why Commission-Based Brokers are the Better Choice for Selling Your Business

Choosing the right broker is crucial when selling your business, as it can significantly impact the success of the transaction and ultimately affect your bottom line. While some brokers may charge a retainer fee upfront, opting for a commission-based broker offers distinct advantages that can better align incentives and drive results. 

Here is why you should avoid brokers charging a retainer and instead opt for those who work on commission.

Aligned Incentives:

• Commission-based brokers are motivated to sell your business quickly and for the highest possible price since their compensation is directly tied to the outcome of the transaction. In contrast, brokers charging a retainer fee upfront may not have the same level of urgency or incentive to prioritize your sale, as they've already received payment regardless of the outcome. Often times a retainer fee broker advises against the first offer due to the continuation of their fee. While a commission-based broker focuses more on close-ability and advises purely on the buyer/offer, not when/where it came from. Working with a commission-based broker ensures that your interests are aligned, leading to a more focused and proactive approach to selling your business.

Reduced Financial Risk:

• Paying a retainer fee to a broker upfront can represent a significant financial commitment, especially for small and medium-sized businesses. In some cases, businesses may end up paying a retainer without seeing any tangible results or progress towards a sale. This is what happened to me when I sold my business. Opting for a commission-based broker alleviates this financial risk since you only pay a fee upon successful completion of the sale. This pay-for-performance model ensures that you're only investing in the broker's services when they deliver results.

Increased Motivation and Accountability:

• Commission-based brokers have a vested interest in achieving a successful outcome for your business sale, as their compensation depends on it. This inherent motivation drives them to work diligently on your behalf, leveraging their expertise, resources, and network to identify qualified buyers and negotiate favorable terms. Furthermore, commission-based brokers are accountable for their performance, as their earnings are directly tied to the value they bring to the transaction. This accountability ensures that they remain committed to achieving your desired goals throughout the selling process. When I sold my business with a retainer fee broker, they kept trying to sell our business to unwilling parties but made it a point to keep telling us they were trying to sell my business. 

Cost-Effective Solution:

• Working with a commission-based broker can be a cost-effective solution for selling your business, especially for owners looking to maximize their return on investment. Instead of paying a fixed retainer fee upfront, you only incur costs when the broker successfully sells your business. This means that you're essentially outsourcing the sale of your business to a professional with industry expertise and a proven track record, without incurring significant upfront expenses. My business was eventually sold after 18 months, which by then the commission the retainer fee broker would have earned exceeded their monthly retainer fee. And I sold my business to a vendor of ours that the retainer fee broker told me they were not a good buyer before even speaking with them. 

Access to Expertise and Resources:

• Commission-based brokers often have extensive experience and resources at their disposal, including comprehensive market knowledge, a network of potential buyers, and strategic negotiation skills. By partnering with a commission-based broker, you gain access to their expertise and resources, which can significantly enhance your chances of achieving a successful sale. These brokers are incentivized to leverage their knowledge and connections to maximize the value of your business and secure the best possible deal for you. At the end of the day, the seller ultimately chooses if they will accept the deal or not. A commission-based broker can only advise on if the offer is fair or not, but the seller will always have final say on accepting an offer.

When it comes to selling your business, choosing the right broker is crucial to achieving a successful outcome.

While some brokers may charge a retainer fee upfront, opting for a commission-based broker offers several advantages, including aligned incentives, reduced financial risk, increased motivation and accountability, cost-effectiveness, and access to expertise and resources.

By working with a commission-based broker, you can rest assured that your interests are aligned, and you're only paying for results. Ultimately, you want a partner in this process for its unpredictable and grueling. The best way to ensure results is to have someone tie their compensation into achieving results.