What It Actually Costs to Have Somebody Sell Your Company

The percentage is the part owners compare and the part that varies least. The structure is where the money is decided.

Across advisors, the reported spread on a success fee runs from under one percent of the transaction to over eight. That range is not noise; it tracks deal size almost perfectly. At five million dollars, a success fee in the high single digits is normal. At twenty million it usually sits in the middle single digits. At a hundred million it is one or two percent.

Those figures come from surveys of what advisors say they charge. Nobody publishes what was actually collected on closed transactions, so treat them as the shape of the market rather than a price list.

Why small deals cost more as a percentage

Because the work does not shrink in proportion to the price.

A ten million dollar sale takes nearly as much labor as a fifty million dollar one. The same preparation, the same recast, the same research, the same buyer campaign, the same months of negotiation and the same close. Somebody has to pay for the labor, and on a smaller transaction that labor is a larger share of a smaller number.

Which is also why a firm quoting a very low percentage on a small company is telling you something about how much work it intends to do.

Two pieces, and only one of them is the big one

The up-front fee pays for everything that happens before anything goes to market: the financial analysis, the recast, the research, the document a buyer will read. It is modest next to the success fee. Some firms bill it once; others bill monthly while the engagement runs.

The thing to establish is whether it is credited against the success fee at closing. Roughly half of firms credit it and roughly half do not. Both answers are defensible. What is not defensible is finding out at closing.

The success fee is paid when the deal closes and is the bulk of the compensation. It comes in three shapes.

A flat percentage of the price. A declining scale, where the rate steps down as the price climbs, which about half the market still uses. Or an accelerator, where the rate steps up above a threshold, so the advisor earns a higher rate on every dollar above the number you said you wanted.

The accelerator aligns the advisor with you better than the other two, and it is the least common of the three. That is worth sitting with.

The minimum is frequently the whole conversation

Roughly three quarters of firms set a minimum success fee, and on a smaller transaction the minimum, not the percentage, is the number that actually applies.

Which means an owner comparing two firms on percentage alone can pick the more expensive one without ever knowing it.

Work it through

Illustrative. An eight million dollar sale. An up-front fee of twelve thousand dollars that is not credited. A success fee of five percent, which sits inside the normal band for a company of that size and is not a quote.

Four hundred thousand dollars at closing, plus the twelve thousand already spent, is four hundred and twelve thousand, or 5.2 percent of the price. Credit the up-front fee instead and the total is four hundred thousand. Add a two hundred and fifty thousand dollar minimum and nothing changes, because the percentage already clears it.

Now run a three million dollar sale against that same minimum. The minimum is the entire conversation and the percentage is irrelevant.

The four questions that separate two quotes at the same rate

Run these against each proposal and the rate stops being the thing you are comparing.

Is the up-front fee credited? Credited, it comes off the success fee at closing and you simply paid part of it early. Not credited, it is an additional cost on top of the success fee. Same rate, two totals.

Does the minimum bite? Apply the rate to your likely price and compare the result to the minimum. If the minimum is larger, the percentage is irrelevant and the minimum is the whole conversation. That is the comparison an owner who shopped on rate never ran.

What is the rate applied to? A rate on cash at closing and a rate on total consideration are different instruments. The second is standard, and it is the one that behaves predictably when the structure changes late.

When is it payable? At closing, in cash, on everything, is the usual answer. If part of your price arrives over three years, that one matters more than the rate does.

Then ask what the firm will do in the first ninety days, because that is what the up-front fee is buying.

What the fee is calculated on

This is the longest clause in most engagement agreements and the one owners skim. It defines consideration, and it is deliberately comprehensive: cash, stock or other securities, notes, the assumption of or relief from debt and other liabilities including personal guarantees, amounts payable under an earnout, and amounts payable under a consulting agreement or a covenant not to compete.

The reason it is written that broadly is that every item in it is part of the price. A buyer who pays less cash and assumes more debt has not bought the company more cheaply; they have paid in a different currency. A buyer who moves four hundred thousand dollars of the price into a non-compete has moved it, not removed it. A fee calculated only on cash at closing would be calculated on a number both sides could move at will, and it would get moved.

When it is payable, which is the part that stings

At closing, in cash, on the full consideration as defined above. That is the standard term, and it holds even where part of your price arrives later.

The logic, plainly: the advisor’s work is complete at closing. Whether an earnout pays out over the next three years depends on how the business performs under its new owner, which the advisor neither controls nor influences. The same is true of a note, and of stock in a buyer whose share price does whatever it does. An advisor paid only as those components arrive is carrying your post-closing risk with no ability to affect it, and the fee was never priced for that.

Some firms do pay the deferred portion as the seller collects it. Most do not, and the agreement is the only place the answer lives.

The planning consequence

Your advisor’s fee is a cash cost at closing, calculated on the whole price including the paper.

So if a meaningful share of your consideration is deferred, the cash you walk away with on closing day is smaller than the headline by more than most owners expect. That is math to do before you sign a letter of intent rather than during closing week, and it belongs in your written transaction goals as a line of its own.

What getting it wrong costs

Not the fee. The comparison.

An owner who chose on percentage and never asked about the minimum, the credit, the definition of consideration, or the payment timing has not chosen the cheaper firm. They have chosen the firm whose number was easiest to quote, and they find out which one that was on the day the money moves.

There is a larger version of the same error. A firm quoting a very low rate on a small company is telling you how much work it intends to do, and the preparation nobody is funding is the preparation that raises the price.

More on this: Four Lines in an Engagement Agreement Decide What It Costs You.

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This is what we do. Prism Edge puts the structure in front of you before any paper arrives: whether the up-front fee is credited, whether there is a minimum and what it is, what the fee is calculated on, and what your closing-day cash actually looks like once the fee and any deferred consideration are both in the model. That last number is the one you are actually deciding about.

The full chapter on what advisors charge, and the chapter on the agreement itself, are both in The Business Sale, free to download here.