Bleary-eyed last night after another long day at the office, I was catching up on email newsletters in my inbox. Yes, I should have been relaxing or reintroducing myself to my children, but so it goes sometimes, right? One article said to avoid business brokers who charge an up-front fee. I wondered, what? Is this a joke? I checked, reading it again; it wasn’t. Scarier still, the piece was written by… a business broker! Good Lord, I thought – this is absurd. Here’s a guy who not only places zero value on his up-front efforts, he’s telling the world to run from those who do. Wow.
So, let me get this straight, I thought. The article admonishes would-be sellers to “choose a reputable broker, one who only charges a commission.” So, let’s say straight-commission broker – call him Bob – takes 20 – 30 listings, somehow advertises them on the web, and plays “spaghetti selling”: throw a pile of it against the wall and see what sticks. “Hey, it’s a numbers game,” our fearless broker says, certain in his belief. “Timing is everything.” And Bob waits.
Compare that against a broker – oh, let’s call him Chris – who limits the number of engagements he does to six. He charges reasonable fees for valuation and engagement and a commission upon success. Chris (named thusly by his mother as “carrier of the cross”) is a long-suffering, guilty Catholic who doesn’t rest unless he works every engagement every week, moving the ball forward in some meaningful way, leading to at a minimum feedback for each of his clients as to what the market is saying. Yes, he charges fees to cover some time and overhead (mainly office and association expenses), but he also works tirelessly to earn said meager fees and sleeps knowing that he’s doing everything his simple mind can conjure to hopefully help sell his clients’ businesses in clean, expedited fashion.
Chris is the guy sellers are supposed to avoid? Go with Spaghetti Bob instead? Huh? If the article’s author has his way, business owners will end up calling brokers and asking, “Do you charge up-front fees?” Those who do – few as we may be – will confidently answer “Yes”… and then hear a click. Hang up! Run for cover! Why? It is a sad state of affairs when we’re chicken to charge for our time. Sadder still when we’re Chicken Little, scrambling around spouting decades-old advice when all a business broker did was figure out what sucker should buy your faltering restaurant. Oh boy.
Murphy Business in Franklin charges up-front fees. If the sky doesn’t fall on your head, please always feel welcome to call to discuss this and other matters.
Good for you, Chris. I also believe that you get what you pay for. But we’re not alone. In the ancient text of Deuteronomy, there is an admonition to “not muzzle an ox while it is treading out the grain.”
Chris, I love this article. As an investment banker, I also charge up front fees (typically a monthly consulting fee during the process), and I also hear feedback occasionally from prospective clients that I should be willing to work for only a success fee if and when the business is sold. I have never understood this perspective – human nature being what it is, we work harder for people who are paying us. I like to think that even if you haven’t paid me something up front that I’d work just as hard to get your business sold, but even that old Protestant work ethic might be reminding me that “they’re not paying me, so it’s okay to slack off.”
I once had a prospective client tell me that he wanted me to share the risk, so I should work just for the hope of a success fee. I responded to him that it didn’t look like “sharing” the risk – it looked like me taking ALL the risk! Selling a business is difficult and time consuming effort, and the business owner always has the right to decide not to sell. The only investment bank that I know of that will work on that basis gets paid their success fee if they generate an offer within a specified valuation range; so regardless of whether or not the deal actually closes, they get paid their success fee.
Hans and Laura, many thanks for the insightful commentary. This is such a worthwhile debate, isn’t it? Like all the good ones, there are many sides from which to view this… and we must be collaborative AND pay the bills. Onward and upward!