What it costs to sell a company through an M&A advisor, and what the fee should buy

The short answer on cost

Most advisors who sell established companies are paid mainly through a success fee, a percentage of the transaction that is owed when the deal closes. Some also charge upfront retainers, monthly fees or separate charges for valuations and marketing. At MDR & Associates our fee is 100 percent performance-based: the first meeting and the opinion of value are free, and if we do not complete a transaction, the owner owes us nothing. The real question is not the size of the fee but whether the process raises the price and terms by more than it costs.

I have been selling Texas companies since 2008, mostly manufacturing, distribution, service and construction businesses with roughly $3 million to $100 million in revenue. Owners usually ask about the fee early in the first meeting, which is fair. This guide explains how the common fee models work, what a fee should actually buy, which costs of a sale sit outside the advisor's fee, and how to compare two proposals that look different on paper.

Three ways advisors get paid

Fee arrangements in this business fall into a few patterns, and many firms mix them. Understanding which one you are being offered tells you a lot about where the advisor's incentives sit.

A pure success fee means the advisor carries the risk. They spend months preparing the business, marketing it and negotiating, and they are paid only if a buyer closes. A retainer model shifts part of that risk to you: you pay a set amount upfront or monthly regardless of outcome, and a success fee may still apply at closing, sometimes with the retainer credited against it. A third pattern charges separately for pieces of the work, such as a valuation, a marketing package or a data room, before the sale is ever offered to a buyer.

• Success fee only: paid at closing, nothing owed if the deal does not close
• Retainer plus success fee: some money upfront or monthly, more at closing
• Fee for services: valuations, packages or marketing billed separately
• Hybrid arrangements that combine these, often with a minimum fee

What a fee should actually buy

Whatever the model, ask what work is included, because the fee pays for the process, not for a listing. In our engagements the fee covers the whole path from the first meeting to the wire transfer. That starts with a discovery meeting with a partner and a free opinion of value based on three years of financials. If we agree to proceed, we build a confidential marketing package with a business profile, financial summary, organizational chart and industry statistics, plus a video that shows the company's value drivers.

From there the fee covers buyer screening, buyer meetings, negotiation with several buyers toward letters of intent, presentation of every offer to the owner in person, management of due diligence, coordination with the M&A attorneys who draft the closing documents and the closing itself. A VP of Client Engagement is the main contact during marketing, and a partner steps in for negotiation and stays through closing. If a proposal you are comparing does not include one of these pieces, find out who does it and what it costs.

• Opinion of value and a candid read on whether the business is saleable
• Confidential marketing materials and buyer outreach
• Screening buyers for confidentiality and financial qualification
• Negotiating price, structure and transition terms with several parties
• Managing due diligence and the path to closing

Costs of a sale that sit outside the advisor's fee

The advisor's fee is not the only cost of selling a company, and owners who plan only for that number are surprised at closing. Your own M&A attorney will charge for reviewing the letter of intent and negotiating the purchase agreement and related documents. Your CPA will bill for tax planning and for helping answer diligence requests. The U.S. Small Business Administration's guidance on selling a business notes that the sales agreement should list adjustments and broker fees, so these costs end up written into the deal. If you or the buyer needs a formal third-party valuation, that is a separate engagement; we offer one for owners who need a documented appraisal, and it is distinct from the free opinion of value.

The largest cost is usually tax, and it depends heavily on how the deal is structured. How the purchase price is allocated among equipment, inventory, goodwill and other assets changes what you keep, so bring your CPA in before you sign a letter of intent. I cover the Texas side of this in the tax and paperwork details of selling a company in Texas.

How to tell whether the fee pays for itself

The case for paying an advisor rests on competition. One buyer means one price. When several qualified buyers look at the same company on a common timeline, both price and terms tend to improve, and the difference often outweighs the fee. That is the reasoning I give owners who already have an interested buyer and wonder why they would pay anyone; if that is your situation, read what to do when someone offers to buy your business before you respond.

The second part of the case is your attention. Owners who run a sale themselves tend to lose focus on operations, and buyers price the trailing numbers. A soft quarter during the process shows up directly in the offers. Keeping you focused on the business while someone else handles marketing, buyers and paperwork protects the value you are selling. If you are weighing that trade-off, selling a business without a broker walks through what the work involves.

Finally, consider the cost of a deal that falls apart. A failed sale can cost months, legal fees and sometimes the confidence of employees who heard rumors. Under a success-fee model, the advisor shares that risk with you.

What makes one sale cost more than another

Even under a success fee, the effort behind a sale varies widely, and so do the related costs. A profitable company with clean books, steady growth and a management team that stays after closing moves quickly and draws strong buyers. A business with reconstructed financials, owner perks that are hard to document or heavy dependence on one customer takes longer, needs more explanation and usually draws fewer offers.

Timeline is a cost too. Our average from listing to closing is three to six months, but we have closed one sale in eight days and another took 18 months. Profitability, how niche the business is and how long it has operated all affect that. The longer a sale runs, the more legal and accounting time it consumes and the more risk the numbers soften along the way.

• Quality and consistency of the financial records
• Customer concentration and dependence on the owner
• How specialized the business is and how many logical buyers exist
• Whether the owner is willing to stay through a transition
• Whether the business is growing, flat or declining

Comparing two fee proposals side by side

When owners bring me a competing proposal, I suggest putting both on one page and answering the same questions for each. The goal is to compare total cost in a successful sale, total cost if no sale happens and what work you get in either case.

Pay attention to the length of the exclusive listing period and to any clause that entitles the advisor to a fee if you sell to someone they introduced after the agreement ends. These terms are common and reasonable in principle, but the details matter, and your attorney should read the agreement before you sign. For a fuller list of what to ask, see questions to ask a business broker before you sign.

• What do I owe if the business does not sell?
• What is paid upfront, monthly or for separate services?
• How is the success fee calculated, and on what amount?
• Who does the work day to day, and who negotiates?
• How long is the exclusive period, and what happens after it ends?

Mistakes owners make when shopping on fee alone

The most expensive mistake is choosing the lowest fee from an advisor who cannot produce competing buyers. A small saving on the fee is easily lost in a lower price or weaker terms. The second is paying a large retainer to someone who agrees with your hoped-for price before seeing your books. An advisor who tells you hard truths in the first meeting is usually the one who will close.

The third mistake is ignoring structure. A higher headline price with a large earnout, a big seller note or a long required stay can leave you with less than a lower all-cash offer. The fee matters, but the net amount you take home, and when you receive it, matters more.

Starting with a free opinion of value

If you want to understand the economics before committing to anything, start with what costs nothing. We hold a complimentary one-hour discovery meeting at our Frisco office, or by phone if that is easier, and we review the last three years of financials to give you a low-to-high opinion of value. You will also hear plainly whether we think we can sell the company for maximum value, because we only take engagements we believe we can complete.

From there you can compare that range with any offer you have, decide whether now is the right time and see exactly how our fee works before you sign. We work with owners across Dallas–Fort Worth, Austin, Houston and San Antonio, and the timeline of a typical engagement is laid out in how long it takes to sell a company.

Questions people ask me