Key takeaways
- Sell-side advisers are paid mostly on success, with a retainer that covers preparation and keeps the engagement serious.
- Fee structures change with deal size, and a sliding scale such as the modified Lehman formula is the common approach for larger transactions.
- A minimum fee protects the adviser on small deals, and you should know it before you sign.
- Read the engagement agreement for the fee base, the term, the tail and what happens if you sell to someone you found yourself.
Owners are often unsure how to compare advisers because the fee structures look different and the agreements are long. In practice most sell-side fees in Canada follow one of a few patterns, and once you understand them you can compare any proposal. This guide explains those patterns using our own published BizSell.ca pricing as the worked example, because it is the one we can state exactly.
Other firms charge differently, and some charge more or less than we do. What matters is that you understand what you are paying for, when, and against what base.
The two parts of a sell-side fee
Most sell-side engagements have a retainer and a success fee. The retainer is paid at the start and covers the preparation: the valuation, the confidential information memorandum, the data room, the blind marketing and the early buyer work. It is usually modest relative to the success fee and it serves two purposes, covering real costs before any buyer appears and confirming that the owner is serious.
The success fee is paid at closing as a share of the transaction value. It aligns the adviser with the owner's result, because the adviser is paid more when the price is higher and nothing if the business does not sell. It also means that the adviser's real income depends on closing, which is why a good adviser is selective about the businesses they take on.
Main Street pricing, the BizSell.ca example
For businesses selling under $2M, which brokers often call Main Street, BizSell.ca charges a $5,000 retainer plus 10% of the transaction value, with a $25,000 minimum fee. The flat percentage is typical for this segment because the work of selling a small business is not much less than the work of selling a larger one, and a percentage of a small price would otherwise not cover it. The minimum exists for the same reason.
Worked example: a business that sells for $600,000 would carry a success fee of $60,000 at 10%, plus the retainer already paid. A business that sells for $200,000 would be at the $25,000 minimum, since 10% would be $20,000. Ask any adviser whether the retainer is credited against the success fee, and read the agreement to confirm.
Lower mid-market and the modified Lehman scale
For businesses between $2M and $10M, BizSell.ca charges a retainer of $10,000 to $15,000 plus a success fee on a modified Lehman scale: 8% of the first $1M, 6% of the next $1M, 4% of the next $3M and 2% above that, with a $50,000 minimum. A sliding scale is standard for larger transactions because the effort does not rise in proportion to the price, so the percentage falls as the price rises.
Worked example on a $4M sale: 8% of the first $1M is $80,000, 6% of the second $1M is $60,000, 4% of the remaining $2M is $80,000, for a total success fee of $220,000, which is 5.5% of the price. On a $2.5M sale the fee would be $80,000 plus $60,000 plus $20,000, for $160,000. The percentages and the breakpoints differ between firms, so compare the total fee on your likely price rather than the headline rate.
- Retainer: amount, when paid, and whether it is credited against the success fee
- Success fee: percentage or scale, and the minimum
- Fee base: whether it includes vendor financing, earn-outs, working capital, real estate and assumed debt
- Term: how long the agreement runs and how it is ended
- Tail: for how long after the agreement a sale to a buyer the adviser introduced still earns a fee
- Exclusions: whether a buyer you found yourself, or a family member or employee, is carved out
- Expenses: whether marketing, data room and travel costs are included or billed
Valuation and buy-side work
A standalone valuation is usually a flat fee. BizSell.ca charges $3,500 for a valuation using three methods, with normalised EBITDA and SDE and a report of 25 to 35 pages. Buy-side advisory, where an adviser helps a buyer find, evaluate and negotiate an acquisition, is structured differently and more variably, sometimes as a retainer, sometimes as a success fee paid by the buyer, sometimes hourly. Ask how the adviser is paid and by whom, because an adviser paid by the seller works for the seller.
Consultations are priced separately. A Business Acquisition session with Ali runs 60 minutes for $399, and a Strategy Session 90 minutes for $499, and neither obliges you to anything further.
Judging whether the fee is worth it
The fee is worth it if the adviser's work produces a higher price, a more certain closing or a better structure than you would have achieved alone, net of the fee. The evidence is in what the retainer actually buys, in the quality of the buyer network, in how the adviser handles confidentiality and negotiation, and in whether they will tell you something you do not want to hear. Ask to see a sample memorandum. Ask how many buyers are in their network and how they are qualified. Ask what they would do if your business does not sell.
Our pricing is published at BizSell.ca so that owners can compare it before they call. If you want to talk through a sale and what it would cost, call or text (604) 632-4959 or email ali@sedighi.ca.