Buying an item is a quite straightforward process: find what you need, agree on a price, and purchase it. But what if you need to sell something? For example, your business. If you’re like most business owners, the idea of finding a buyer, negotiating a fair price, and successfully completing a sale is daunting, to say the least. This is where business brokers come in. Business brokers are middlemen who help facilitate the sale of businesses by working with both buyers and sellers to negotiate a fair deal. In most cases, business brokers will work with small to medium-sized businesses (typically businesses that have annual revenue of $2 million or less). As a career, business brokering can be quite lucrative, as you will find out on your journey to becoming a business broker with Transworld Business Advisors. In this article, we’ll take a look at what business brokers do, how much they make, and whether or not this career is right for you.
How much do business brokers make?
Business brokers typically work on a commission basis, which means they only get paid if and when a sale is successfully completed. Commissions are typically a percentage of the total sale price, and they can vary depending on the size and complexity of the deal. The most common commission structure is 5% – 8% of the total sale price, but commissions can range from 2% to 10% or more.
There are also some brokers that charge a flat fee, regardless of the sale price. Flat fees are typically a few thousand dollars and are usually only charged for small, simple sales. In addition to commissions, some brokers also charge an hourly rate for their services. Hourly rates vary depending on the broker’s experience and the complexity of the sale, but they typically range from $100 to $300 per hour. Another common method of charging clients is the Double Lehman method, which charges 10% on the first million, 8% on the second million, 6% on the third million, 4% on the fourth million and 2% on any remainder.
In terms of actual earnings, this industry quite follows the Pareto principle, with 20% of the brokers generating 80% of the revenue. The top business brokers in the country make well over $1 million per year, and some make even more than that. An experienced broker can expect to make around $200,000. The vast majority of business brokers, however, earn a more modest income of around 75,000-100,000.
What factors can influence how much a business broker makes?
1. Experience
As with any career, experience is a major factor in earnings. Business brokers who have been in the business for many years and have closed many deals will typically earn more than those who are just starting out. For instance, a business broker who has been in the industry for 10 years and has closed 100 deals is likely to earn more than a business broker who has only been in the business for two years and has closed 10 deals.
2. The size and complexity of the deal
The size and complexity of the deal can also have a big impact on earnings. Obviously, a business broker who closes a $5 million deal will make more money than one who closes a $500,000 deal. But it’s not just the sale price that matters; the complexity of the deal can also play a role. For example, a broker who successfully sells a family-owned business that has been in operation for generations is likely to earn more than one who sells a simple, turnkey business
3. Location
Another factor that can impact earnings is location. Business brokers who work in large, metropolitan areas are typically going to make more money than those who work in small towns or rural areas. This is because there are simply more businesses to choose from in large cities, and the competition among brokers is often more intense.
4. The type of business being sold
The type of business being sold can also have an effect on earnings. For instance, a broker specializing in selling restaurants is likely to make more money than one specializing in selling retail businesses. This is because restaurants tend to be more complex and expensive than most other types of businesses.
5. The broker’s commission split
Last but not least, the broker’s commission split can also have a big impact on earnings. The commission split is the percentage of the total sale price that the broker gets to keep. For example, if a broker has a 50/50 commission split with their employer, they will keep half of the total sale price. But if they have a 70/30 commission split, then they will keep 70% of the total sale price. Obviously, the higher the commission split, the more money the broker will make.
Being a business broker can be a very lucrative career, but it’s important to keep in mind that there is a lot of variation in earnings. The factors listed above can all impact how much money a business broker makes. So if you’re thinking about becoming a business broker, make sure to do your research and choose the path that’s right for you.
