This sounds Machiavellian, but it seems to me that people primarily act out of self interest. Yes, I will grant you that there are genuine acts of charity and self-sacrifice, but I did say "primarily." Just work with me here??
Take that one more step, and my "self interest" is best served when my interests parallel the interests of the other person. Extreme examples: during a mugging, it is in my best interest not to resist, to give them what they want and keep my mouth shut. That last part has always been a bit difficult for me. Your interest in surviving without too much damage parallels their self interest of not murdering you.
On the other hand, a typical example: partners (whether business or marriage) serve their own personal best interests by doing the things that need to be done in a manner that uses their own diverse talents even though some of those tasks may not be a lot of fun.
Enough about this philosophy stuff, what does this have to do with Business Brokerage? Simply this, that you will be best served when your business broker has an interest in the outcome that will be most favorable to you. How can this work when your financial interests are diametrically opposed to the Seller? He wants the highest price, you want the lowest price. Again, the intermediary has the interesting task of finding a "middle ground" that can be acceptable to both parties but allow for the transaction to actually move forward.
A good rule of thumb: when the Seller is not pleased and the Buyer is not pleased, you probably have a good deal.
Another clue is how the Broker/Intermediary is being reimbursed. It is quite common, and really good business for Brokers to charge a retainer. So much a month to do list the business, prepare the "book" and to develop potential buyers. This plus a commission or success fee when the transaction is accomplished. I know of a situation where the intermediary was paid $30,000 to prepare a "book," and it wasn't very good at that. Plus, they were to get the Lehman Formula for their efforts.
The Lehman Formula is the basis for most broker payments. Around for decades and named long before the Lehman Brothers failure, it provides for a fee of 5% of the sale price for the first $1 million, 4% for the second, 3%, 2% and 1% for anything over $4 million. Most Business Brokerage transactions are "double-Lehman," starting at 10% and ending at either 2% or 3%.
My listings are nearly always double-Lehman and I seldom charge a retainer except for a Listing Fee that ranges from $500 to $2,000 and has two purposes: one, to reimburse me for time and cash expended for preparing a valuation and for advertising; and, importantly, two, to determine if the Seller is actually serious. Without going into the reasons why people do what they do, suffice it to say that some Sellers will undertake a listing if it is free, disregarding the imposition that may cause on me. So, I impose that just to find out if they are serious.
With the double-Lehman, a business that is sold for $1,000,000 will owe me a success fee of $100,000 which, more often than not, I will share with another broker that brings the buyer. The broker pays for their own expenses and has a security interest to guarantee payment.
If I were advising a Seller, I would tell them to use an intermediary who practices pricing along those lines--virtually all the fees come from getting the job done, few if any fees come from up-front payments. There is little incentive to do the really hard work of working with buyers and sellers when you are sitting back collecting retainers.
Another caveat for the Parties is to make sure that the Brokers involved do not duplicate fees. If this happens, you will simply arrive at an impasse as the broker fees are so large that the deal is impractical.
So, self interest can guide you to a happy outcome. Align yourself with the interests of others and you get the best deal.
Contact me at 913.238.2298 or email at info@nbbcompany.com
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