Double Lehman Scale, Double Lehman Formula

Double Lehman Scale

Business Broker Services and Associated Fees

Buying or selling a company is a very methodical process which is more properly handled and best performed by experienced professionals who specialize in this field.

Business Brokers specialize in marketing a company for sale and are experienced in the task of closing the sale. Their services and fees are typically offered and charged under various arrangements.

Business Broker Representation

This involves the strategies, comprehensive programs, and methods of coordinating all tasks relating to each phase of the selling process. This enables owners to not concern themselves as much with the sale but rather focus on their most important task - operating their companies at maximum performance in order to maintain impressive financial performance during the most important period of the seller's ownership of the company which is during the sale of it. The Business Broker's out-of-pocket expenses are typically paid by the client on an as-incurred basis. Additionally, a contingency fee, sometimes referred to as a "success fee" (the brokerage commission) is due at closing and and funding in some cases, there is a pre-sale planning fee required by the Broker. For companies with a sale price of less than $1,000,000, contingency fees may range from ten (10%) to fifteen (15%) percent with a minimum fee that is generally about $10,000 - $15,000. A sale price over $1,000,000 may have a fee schedule that is generally referred to as the "Double Lehman scale". For companies with sale prices over $6 million to $10 million, contingency fees are quoted on a much more customized or "per job" basis. The Double Lehman Scale is calculated as follows:

DOUBLE LEHMAN SCALE
Up to US $1,000,000	10%
$1,000,000 to US $2,000,000	8%
$2,000,000 to US $3,000,000	6%
$3,000,000 to US $4,000,000	4%
$4,000,000 and up	2%

Example: A company selling for $5,500,000 would have the following business brokerage fees:

DOUBLE LEHMAN SCALE EXAMPLE
	10%	of the first 1,000,000	=	100,000
plus	8%	of the second 1,000,000	=	80,000
plus	6%	of the third 1,000,000	=	60,000
plus	4%	of the fourth 1,000,000	=	40,000
plus	2%	of the remaining 1,500,000	=	30,000
Total Brokerage Commission:				310,000
Brokerage Fee as a percentage of the $4,500,000 sales price:				5.63%

Hourly Consulting
Sometimes sellers who are experienced in buying and selling companies and are generally well-versed in the process but need assistance only during certain phases of the process employ business brokers on an hourly basis. These consulting fees generally range from $125 to $300 per hour.

Business Appraisal
As an integral part of the first stage of the selling process, valuing a company is one of the most important issues. It is highly recommended that sellers obtain a third-party business appraisal from a well-respected business appraisal firm.

A Business Broker should not be the one to appraise the business and they are generally not sufficiently qualified to do so. Even if they feel that they are qualified, a business broker’s own business appraisal can create doubt in a buyer’s mind. The most important thing to understand is the issue of credibility and believability. Buyers have a problem with this when the seller’s business broker is the one who has appraised the company. They see the interests of the seller being placed in front of their own. Third party business appraisal companies help to eliminate this issue.

Experienced and successful professionals in the business brokerage industry know this is generally the key to maximizing the sale price of the company, eliminating the largest portion of frustration and disappointment, and saving all parties involved a great deal of generally expensive time. While most sellers believe that their company is worth more than what the actual value is, there are some instances in which sellers' perception of their company's value is less than what it really is. A business appraisal from a well-respected, third-party business appraisal firm creates credibility and believability with buyers and lenders while at the same protecting and maintaining the seller’s interest in his/her company for sale.

Almost all lenders and federal loan guarantors, especially the SBA, require a business appraisal. It is critical that sellers realize this and understand the importance of a third-party business appraisal. If the seller waits until the time that the lender (that is making the loan to the buyer) requires a business appraisal, the buyer and lender then have influence over the choice of appraisal firms. With the issue of self-interest in mind, one must realize that it is in a buyer’s best interest for the business appraisal firm to be one which values the company for sale as low as possible. Again, there will most likely be a business appraisal involved, therefore, in the interests of the seller, it should be obtained in the beginning stage – not after the company for sale is marketed to buyers. However, if you are a buyer, it is in your best interest to obtain the business appraisal.

Many factors affect the price of a business appraisal which generally ranges in cost from $2,500 to $20,000. However, most business appraisals typically average about $2,500 to $7,500.