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At some point, most financial advisors encounter the same situation: A client who built a successful business asks for help navigating their exit. The advisor refers them to a business broker — often based on a quick search or casual referral.
What happens next can cost that client hundreds of thousands of dollars.
I run a business brokerage, so I see this play out regularly. But the issues described below are structural, not anecdotal.
A Costly Example
Last month, I reviewed a brokerage engagement that a business owner had already signed with another firm. Under its terms, the owner was required to pay the broker $76,800 (12% of the broker's $640,000 list price) even if the business was never successfully sold, if they withdrew from the sale for any reason, or if the broker claimed that the owner had "frustrated" the agreement.
For context, the mean annual salary in the U.S. is $67,920. This business owner could have hired someone full-time for a year for less than what they owed this broker for not selling their business.
This wasn't an outlier. It's representative of what can happen when business owners and their advisors don't understand how the Main Street brokerage market works.
Structural Challenges in Brokerage
Thirty-three U.S. states require little-to-no qualifications to operate a business brokerage. Most other states require only a real estate license.
Industry estimates suggest only 3,000–4,000 brokers serve 33 million U.S. businesses. This supply-demand imbalance drives commissions up to 15% on successful sales, far higher than the 5%–6% typical in residential real estate.
Deal economics also push experienced professionals up-market. Selling a $10 million business is a more lucrative proposition for brokers, on an hourly basis. Smaller business owners often get the least experienced brokers charging the highest relative fees.
Red Flags Your Clients Will Miss
When helping your client select a business broker, watch for these engagement terms:
Fees for non-performance. Standard agreements charge a success fee only when the business sells. Contracts that require substantial payment even if no transaction closes create severe incentive misalignment. In the agreement referenced earlier, the owner owed the full fee if they withdrew for any reason — including rejecting an unattractive offer.
Automatic renewals without exit rights. Some agreements include long initial terms that automatically renew unless the broker agrees to terminate. In our example, the contract had a 12-month initial term that automatically renewed for another 12 months, creating an effective 24-month exclusive period with no seller exit clause.
Excessive tail periods. Tail provisions protect brokers from circumvention by ensuring they are paid if a buyer they introduced closes after the contract ends. Twelve months is reasonable. The aforementioned engagement combined a 24-month term with a 24-month tail — effectively tying the seller to this broker for four years.
What Brokers Actually Deliver
A typical broker provides pricing guidance, prepares a Confidential Information Memorandum (CIM), assists in organizing a data room for confidential documents, conducts buyer outreach, and manages the transaction process through closing.
For a $2 million business, a 12% commission equals $240,000. Good brokers justify their fees by accessing buyer networks and structuring deals that maximize value and certainty. Other brokers deliver largely boiler-plate marketing with limited differentiation rather than a specialized, proactive strategy.
How to Protect Your Clients
Advisors do not need to become business-sale specialists to materially improve outcomes for their clients. A few practical tips can reduce risk significantly:
Encourage clients to interview multiple brokers. Different brokers specialize in different industries and business sizes. In particular, you should distinguish between a broker that specializes in business-sale M&A and one that operates primarily as a real-estate intermediary.
Review engagement terms. Exclusivity periods, tail lengths, commission rates, and termination rights are negotiable. Having yourself or a trusted person familiar with business-sale transactions review the agreement can surface problematic provisions early.
Verify the valuation methodology. Most Main Street businesses are valued on seller's discretionary earnings (SDE) or normalized EBITDA. Ensure the broker can defend their numbers and ‘add-backs’.
Build relationships with vetted business brokers before clients need them. The worst time to evaluate a business broker is when your client has already decided to sell. Brokers often love engaging with advisors, so build relationships early.
Most business owners spend decades building their business. For many, it represents 70–80% of their net worth. As your client’s trusted advisor, your role isn’t to become a transaction expert. It's to recognize where risks lie, ask the right questions, and spot red flags.
Edouard Lyndt is the founder of Sundance Financial, a business brokerage supporting small business owners through their exit. He has worked with leading investment banks, private equity firms, and consulting companies on deals worth hundreds of millions. Edouard holds an MBA from Harvard Business School, where he graduated as a George F. Baker Scholar.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
