Selling a Manufacturing Business: Why Negotiating a Lower Commission Could Damage Your Retirement

Selling a Manufacturing Business: Why Negotiating a Lower Commission Could Damage Your Retirement - Accelerated MFG Brokers
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Negotiating – Have You Done It?

We all do it when we’re involved in larger transactions like buying or selling a home, car or business. We tell war stories about it at our cocktail parties. It provides bragging rights on fishing boats and golf courses all over America. Negotiating a lower price or commission is a national pastime. But when you’re selling your manufacturing business to finance your retirement, could winning at this game actually cause you to lose?

Recently I was asked about my practice and whether or not I will cut my commission to get a deal. This subject comes up on a regular basis with manufacturing business owners, their attorneys, accountants, and families. If you’re going to be retiring in the next few years, it’s appropriate to have this conversation in advance.

What’s This Commission All About

Mergers & Acquisition professionals have various methods of charging for their services. Some charge marketing or valuation fees upfront. Some will credit these fees against the contractual commission and others will not. Some brokers will work on a sliding scale, receiving a larger commission on the first few million, and less for each million thereafter. Others, like myself, work on a straight percentage. I am often asked to lower my commission. My answer is always the same; it’s an emphatic, “NO.”

Before I get to my own reasoning for this, let’s take a look at why negotiating a lower commission might be bad for you. The sale of a manufacturing business, for many, is the largest transaction of their lives. The money you get, or don’t get, can impact your lifestyle in retirement.

Why Specialization Counts

If a broker that you are considering hiring caves when you ask them to lower their commission, what the heck are they going to do when they’re negotiating on your behalf? If the broker is a specialist and they only sell manufacturing companies, they will likely be able to achieve a sale price that others can’t. A broker like that makes more because they’re worth more.

If the broker specializes, they’ll probably get you to the closing table FASTER, because they have a following. This proved true for a recent client in VT. We brought only two buyers into this facility. Both were financially qualified, a good fit for the business and both made offers. It doesn’t get much better than that. If a broker is good at what they do, they’ll add value to the process that you can’t even imagine when you’re negotiating their contract.

A Different Philosophy

My perspective is simple. My services are in demand, and I can only do so many deals in a year. Our M&A practice is such that we never ask our clients to pay money upfront. We spend our own money to advertise, promote and do whatever it takes to get our clients to the finish line. Why would we put forth the same effort to make less? I feel a responsibility for the people on my team to choose clients that we can help.

Our closing ratio is incredibly high, in part because we are selective in choosing clients and we only choose clients who recognize the value of our service and are willing to pay for quality, experience, speed, and an incredible network. If you’re choosing a manufacturing business broker, they better RANK in an Internet search. If they do, you can bet that people looking to buy manufacturing companies are finding their way to their ads, promotions, and listings.

In conclusion

Sometimes you get what you pay for. I just listed a company for several million dollars. I later learned that two other brokers had provided a valuation on the company that was SUBSTANTIALLY less than my listing price recommendation. Was my opinion of the most likely selling price wrong, or was theirs? I’ll report back after I conclude the transaction….but, I already know how this one will turn out.

How do I know? I sell manufacturing companies every day, all day, every month and every year. What do the other guys sell? All I know is that if they worked within the manufacturing community to the extent that I do, they would’ve known what my new client’s company was worth! Their fee was less than mine. My clients will make it up in spades dealing with manufacturing business brokerage experts.

In this case, going with a lower commission would mean millions less in the Seller’s pocket. Sometimes less commission means dealing with a broker that gets you less for your manufacturing business, ultimately damaging your retirement nest egg. What will you do when you’re ready to retire? There are times in life when taking the “cheap” alternative is NOT the best choice.

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