M&A Advisor

You will spend 6 to 18 months with your M&A advisor. It goes without saying that your M&A advisor’s style should complement your own. For example, my style is straightforward and no-nonsense. I’m usually straight to the point, matter of fact, and waste little time in small talk. If you’re looking for a talkative, salesy-type advisor, I’m not your man. If you’re selling a business whose valuation is based on projections and hype, an M&A advisor who takes a more sales-based approach will be a better fit for you. Otherwise, look for an M&A advisor or investment banker whose style complements your own.

One of the primary advantages of hiring an M&A advisor lies in their role as an intermediary. Retaining an intermediary to negotiate on your behalf enables you to maintain goodwill with the buyer and minimize any potential conflicts. This is valuable when you and the buyer will maintain an ongoing relationship after the closing. 

Negotiations regarding price can become contentious. An experienced M&A advisor can keep their cool during these discussions and insulate you from the stress of the high-stakes negotiations. This can help you maintain your focus on your business and minimize interpersonal conflicts with the buyer. This is especially important if your transaction includes an earnout, which is a promise of additional compensation in the future if your business achieves specific financial goals. 

Your M&A advisor will be instrumental in providing a preliminary range of value for your company and preliminary transaction structuring. They will also negotiate with the buyer regarding the high-level elements of the transaction and how the various components of the transaction work together to form the overall deal structure. This could include estimating the possibility and degree of an earnout that may be included in offers from buyers. 

Experienced investment bankers treat negotiations as a win-win proposition as opposed to stating a position and firmly holding one’s ground. An experienced intermediary can be invaluable in uncovering a buyer’s true concerns and creatively structuring a transaction to meet both parties’ needs.

They can also identify risk factors a buyer is likely to perceive in your business, then outline a strategy for mitigating those factors. Ideally, you should build a relationship with your M&A advisor several years in advance so they can strategically advise you on actions you can take to maximize the value of your business. 

An experienced M&A advisor can keep their cool during negotiations and insulate you from the stress of the high-stakes negotiations.

Industry Overview

Before we discuss fees that your business broker, M&A advisor, or investment banker may charge, allow me to provide an overview of the individuals operating within the industry. There is a diverse array of people who sell businesses, and they can be broken down into several categories.

Business Brokers

Business brokers sell the majority of small businesses, or those priced under $5 million. There are anywhere from 5,000 to 10,000 full-time business brokers in the United States from a variety of backgrounds, from sales to marketing and finance. According to the International Business Brokers Association, many business brokers are former entrepreneurs, with an average age in the mid-50s. The more experienced and knowledgeable a business broker is, the more likely they are to sell mid-market businesses, thereby effectively becoming an M&A advisor. Most business brokers are generalists and don’t focus on one specific industry.

Most business brokers work on straight commission. However, the more experienced they are, the more likely they are to charge up-front fees. Many business brokers operate both in the Main Street market and in the middle markets.

Most solo brokers and office owners are full-time brokers, although there are a number of part-time agents who work in offices. It takes a significant amount of knowledge to sell a business, and there are few formal training programs available. Due to the low barriers to entry to become a business broker, many people enter the industry expecting to make quick money but underestimate the amount of expertise that’s required. As a result, many brokers quit within the first few years, so the turnover in the industry is high.

M&A Advisors

M&A advisors specialize in selling mid-sized businesses, or those generally priced from $5 million to $50 million – there is no universally agreed-upon range. There are a few thousand M&A advisors in the United States. Although the majority of M&A advisors represent sellers, there are some who work with buyers. 

Most M&A advisors work solo or as part of a boutique firm. There are a few larger firms that specialize in the lower middle market, but they are in the minority. Some M&A firms focus on specific industries, though the majority are generalists. Many firms offer additional services, such as financing, recapitalizations, and management buyouts, but these constitute ancillary services for most firms.

Most M&A advisors charge an up-front fee, sometimes called a retainer, in addition to a success fee. Some also charge a monthly retainer fee. Typical success fees range between 2% and 8%. Common fee arrangements include the Lehman and Double Lehman formulas, which command a higher percentage on the first million – let’s say 8% – and a lower percentage on successive amounts, such as 6% on the second million, 4% on the third million, and so forth.

As a general rule, most M&A advisors are much more knowledgeable than business brokers because a higher level of knowledge is required to sell a middle-market business than a small business.

Exit Planners

Interestingly enough, there’s a large divide between those who sell businesses and those who prepare businesses for sale. The world of exit planners is a fragmented collection of professionals. There is little crossover between those who prepare businesses for sale and those who sell businesses. In other words, those who help entrepreneurs prepare their business for sale don’t normally help them sell the business, and vice versa. As a result, there’s often a disconnect between exit planning and the actual exit for most entrepreneurs. Also, how can an exit planner advise you on preparing your business for sale if they aren’t actively engaged in the marketplace and aren’t familiar with the buyer’s preferences?

Few business brokers and M&A advisors assist entrepreneurs in preparing their businesses for sale. Our hypothesis is that doing so requires a different mindset, a different set of skills, and different processes. Processes and tools need to be created to advise owners. We go into detail later about how most advisors simply don’t have the manpower to create the processes due to how most offices are structured. 

Investment Bankers

Investment bankers specialize in selling larger businesses, typically those generating more than $100 million per year in revenue. You should be aware that the term “investment banker” is regularly and loosely used by M&A advisors to identify themselves due to the lack of a catchy moniker for those specializing in the middle market – “M&A advisor” sounds clunky. 

Many of the larger investment banking firm’s clients include publicly traded companies. Investment banking firms also offer many other services, such as asset management, trading, equity research, raising debt financing, IPOs, and banking.

There are fewer investment banking offices than M&A firms. Most investment banking firms are larger and have more support staff, though there are some boutique firms in the lower end of the market with between $100 million and $250 million in revenue.

Commercial Real Estate Agents

Many commercial real estate agents sell businesses with a real estate component, such as hotels, motels, or storage units. Some commercial real estate offices are active in the business marketplace, though the majority consider this a minor segment of their business. Most commercial real estate agents charge a 4% to 6% commission, with declining amounts as the purchase price increases. Most work on straight commission, though there are a few who charge up-front fees.

I find it’s best to hire a commercial agent if you have a business with a substantial real estate component. For example, if you own a hotel, hire a hotel broker. There are many agents who specialize in hotels, motels, storage units, gas stations, and car washes. However, it may be difficult if you’re located in a smaller state, as every state requires a real estate license to sell real estate. You may need to hire an out-of-state broker who can cooperate with a local broker. Most states’ real estate departments allow an out-of-state broker to cooperate with a local broker if they’re not licensed in the state. 

Business Appraisers

Most business appraisers only value businesses for tax or other legal reasons. They rarely sell businesses, but most will appraise a business for any owner, for any purpose, including for exit-planning purposes. In my opinion, it’s best to hire someone active in the marketplace, or someone who sells businesses, as they will be able to best advise you on how to increase the value of your business, and their knowledge won’t be purely theoretical. Appraisals can cost $1,000 at the very low end for a verbal opinion of value up to $5,000 to $10,000 for a company with revenue of $5 million per year, and up to $20,000, or more, for larger companies.


Here is an overview of typical fees charged for selling a business based on its size:

Small Businesses Priced Under $5 Million (Main Street)

  • This market is primarily handled by business brokers.
  • Most brokers charge a flat commission between 8% and 12% if the business is under $1 million and charge a lower fee for businesses priced from $1 million to $5 million. Most follow the Double Lehman or Modern Lehman formula, or some version thereof:
    • 10%-12% on the first million, plus
    • 8% on the second million, plus
    • 6% on the third million, plus
    • 4% on the fourth million, plus
    • 2% after that.
  • If a business sells at $5 million, then the fee would be: $100k + $80k + $60k + $40k + $20k = $300k.
  • Most business brokers charge a minimum fee of $10,000 to $25,000, regardless of the sale price for the business. For example, if a business sells for $50,000, the broker’s fee would be $25,000.
  • Most business brokers work on straight commission. A minority of brokers charge an up-front fee, but the more experienced the broker is, the more likely they are to charge up-front fees as a general rule.
  • Most business brokers have no incentive to improve the value of your business due to their fee structure. A straight commission model incentivizes the broker to sell your business as fast as possible with minimal effort.

Mid-Sized Businesses Priced From $5 Million to $100 Million (M&A)

  • Most M&A advisors charge up-front fees, in addition to a success fee. The up-front fee, usually called a retainer, varies from as small as a few thousand dollars to more than $50,000. Most advisors have a minimum fee in the range of $50,000 to $250,000.
  • The most common fee structures are the Lehman and Double Lehman formulas.
    • Lehman Formula:
      • 5% on the first million, plus
      • 4% on the second million, plus
      • 3% on the third million, plus
      • 2% on the fourth million, plus
      • 1% after that.
    • Double Lehman Formula:
      • 10% on the first million, plus
      • 8% on the second million, plus
      • 6% on the third million, plus
      • 4% on the fourth million, plus
      • 2% after that.
  • There are other variations on the Lehman and Double Lehman models. For example, some M&A advisors may begin at 8% on the first million and level out at 4%.

Business owners with businesses that sell from $100,000 to $1 million can expect to pay a higher percentage rate than business owners with businesses that sell for more than $1 million. Businesses that sell for more than $1 million often pay a commission that is less than 10% of the purchase price.

Factors To Consider When Hiring a Business Broker or M&A Advisor

You should consider the following questions before retaining an intermediary.

Do they work solely on commission?

Intermediaries who work solely on commission are disincentivized from spending time. A flat commission model incentivizes them to sell your business as quickly as possible with the least amount of effort expended. If you don’t want to be rushed, you may be more suited to work with a firm that charges up-front fees in addition to a success fee.

Firms who work on straight commission must pad their fees to account for the businesses they take on but do not sell. For example, if they have a 40% success rate, they must find a way to receive compensation on the 60% of the businesses they don’t get paid on.

A straight commission structure can also cause bias and misalignment. The more time the broker invests in selling your business, the more they will feel the need to recoup their investment. A broker who charges an up-front fee for services will feel this pressure to a lesser extent, and your interests are more likely to be closely aligned with the broker’s interests.

Does the advisor charge up-front fees?

Most professionals are fee-based, but due to the nature of an M&A transaction, few business owners would be willing to pay tens or hundreds of thousands of dollars in fees only to have a transaction fail at the last minute. As a result, most M&A advisors charge fees for services along with a success fee on the back end. Up-front fees shouldn’t be charged if no service is being provided. For example, if a broker requires a $5,000 retainer fee and doesn’t provide any specific service for this fee, I recommend you keep looking. 

The more experienced the broker, the higher the likelihood they will charge up-front fees, especially if they invest a significant amount of time preparing and packaging a business for sale. Most M&A advisors devote significant time preparing a business, which they are reluctant to do without being paid up front for their expertise. 

Does the advisor have support staff? 

The more professional offices have support staff and rely on a team of both internal and external experts. Selling a business is a difficult multi-disciplinary task that requires an enormous amount of skills in disparate areas. The most efficiently operated offices have developed scalable systems for the repeatable elements in the sale process, such as financial analysis, valuation, marketing, packaging, screening buyers, and closing, with each element handled by an expert in that process. The best operations I’ve seen operate like a surgeon’s office, where the most experienced advisors handle the most complex tasks, while a variety of other staff members deftly execute well-documented and defined processes within a flexible framework.

The size of support staff can have an impact on the level of professionalism demonstrated by the firm and the quality and efficiency of your transaction. Generally speaking, the more support staff the office has, the higher the skill level of everyone involved. In this instance, it’s better to specialize in specific areas than to be a “Jack or Jill of all trades.”

Are they able to customize their services?

Every business is unique and should be handled as such. Ideally, your advisor should work within a customizable framework, but if all services are 100% customized the process will become too inefficient. The ideal scenario is hiring a boutique office that exclusively focuses on selling businesses, has an experienced support staff, and also has a customizable framework.

Can they help with exit planning?

Only a minority of business brokers and M&A advisors help business owners plan their exits. Exit planning primarily consists of helping the owner improve the value of their business over time. Some prepare a formal exit strategy and valuation, while others help on an ad hoc basis. It’s a bonus if they can assist you in preparing your business for sale.

Is the firm local or national?

Most business brokers work on a local basis, while many M&A advisors work on a national basis. Ask yourself if their physical presence is necessary. In most cases, it isn’t. Most business brokers only work locally because they feel it’s necessary to physically meet with buyers. Many do this to protect their commission. If you don’t need the broker to physically meet with buyers, you don’t need to hire a local broker.

Do they work full-time or part-time?

It goes without saying that you should only hire a broker or advisor who works full-time.

What are the terms of their agreement?

Here are some key additional terms and conditions you should consider:

  • Length of Agreement: Most brokers and M&A intermediaries require a one-year exclusive agreement, but you can sometimes negotiate a shorter term. On average, the process of selling a business takes 6 to 12 months. However, it can sometimes take much longer. The length of the agreement tends to coincide with the length of time it takes to sell a business.
  • The Tail: Regardless of how long the exclusive agreement is, at the end of the contract your broker or M&A advisor should provide you with a list of potential buyers acquired throughout the contract. You will then be obligated to pay a fee if you sell your business to one of those buyers following a specified amount of time after the expiration date of the agreement – called a “tail.”
  • Cancellation of the Agreement: Discuss contract cancellation rights with the person or firm you hire. Some agreements allow you to cancel at any time, while others do not. 
The more experienced the broker, the higher the likelihood they will charge up-front fees, especially if they invest a significant amount of time preparing and packaging a business for sale. 

The Bottom Line When Hiring a Broker

You need someone you can trust. Whether you choose an exclusive or open agreement, your business sale depends on reaching the right buyer – that’s really the bottom line. Interview as many brokers as you can and go with the firm you feel most comfortable with that also possesses the most experience.