Selling a business is one of the most important decisions an owner will ever make. It is an incredibly stressful and time consuming experience for most people and is up there with selling your house. Whether you’ve built your company over decades or you’ve grown a start-up into a profitable venture, finding the right buyer is no small task. That’s why many owners turn to business brokers. Some are experienced, professional and honest, others are just sharks looking to take as much money as they can from their customers. The largest brokers are very often the sharks, with the smaller brokers being more likely to actually do anything to sell your company!
Not every broker works to the same professional standard. In fact, some contracts are written in ways that can trap business owners in costly and unfair terms.This article looks at the clauses and contractual pitfalls often seen in the larger business broker company contracts.
Why Business Broker Contracts Matter
When you engage a business broker, you’ll be asked to sign a contract outlining the terms of the relationship. At first glance, this may look like a simple agency agreement: the broker markets your business, introduces you to buyers, and receives a fee if the sale goes through. But in practice, many contracts contain layers of legal detail that shift risk and responsibility onto you, while locking in the broker’s right to earn commission – sometimes even when they haven’t done much to help.
The contract is the foundation of the entire selling process. It dictates:
- When and how fees are payable
- The length of your commitment
- What counts as a “successful” introduction
- Whether you can approach buyers independently
- What happens if you change your mind
Get this wrong, and you may find yourself paying tens of thousands of pounds to a broker who hasn’t delivered a buyer, or worse, still owing them money even after you’ve parted ways.
Common Problem Clauses to Watch For
1. Long Exclusive Mandates
Most brokers will ask for an exclusive mandate or sole selling rights– meaning that for a certain period (12 months is common), they are the only broker allowed to market your business. Exclusivity can make sense: it avoids confusion in the market and gives the broker confidence to invest effort in the sales process. But some contracts include excessively long exclusivity periods, sometimes stretching beyond 18 months or automatically renewing. This can be problematic if the broker is ineffective, unresponsive, or simply not delivering.
Red flag: If your contract ties you in for longer than 6 months without a clear exit option, you may be stuck with a broker who isn’t working in your best interests.
Tip: Negotiate for shorter exclusivity (6 months is reasonable) with the option to extend if you’re happy with progress. Better still, use Recruitment Agency Sales because we don’t ask for sole selling rights!
2. Commission on “Any Sale”
Perhaps the most notorious clause in business broker contracts is the one that entitles the broker to commission on any sale that takes place during (and sometimes even after) the contract period. This means that even if you find the buyer yourself – say, a competitor approaches you directly – the broker can still demand their full commission. Some contracts go even further, extending the broker’s entitlement for months or years after termination, under so-called tail clauses. If you sell to someone who may have seen their marketing materials, they’ll argue they are owed commission.
Red flag: Broad commission clauses with no clear link to the broker’s direct involvement in finding the buyer.
Tip: Ensure the contract states commission is only payable if the broker introduces the buyer and plays an active role in completing the sale. Limit any tail clause to 3 months.
3. High Upfront Fees
While some upfront payment is reasonable (to cover marketing costs and valuation work), large non-refundable upfront fees are a common trick. Unscrupulous brokers may charge several thousand pounds before doing any meaningful work – and then put in minimal effort to sell the business.
Red flag: Demands for a substantial upfront fee (e.g., £5,000–£15,000) with no guarantee of performance.
Tip: Ask for a breakdown of what the upfront fee covers (our premium services cover the cost of valuation and extended advertising – and are not repeated), and make sure the majority of the broker’s compensation comes from a success-based commission when the sale completes.
4. Ambiguous “Introduction” Clauses
Contracts often define what it means for a broker to “introduce” a buyer. Some definitions are so broad that they could include anyone who simply saw a generic advert, even if the broker never spoke to them directly.
Red flag: Vague wording such as “any person who becomes aware of the business through our marketing efforts.”
Tip: Narrow the definition so that commission is only due if the broker directly introduces you to a named individual or entity, and that introduction leads to a successful sale.
5. Automatic Renewals
Be cautious of contracts that automatically renew unless you give written notice in advance. These clauses can trap busy owners who forget a deadline, leaving them tied to the same broker for another lengthy period.
Red flag: Renewal clauses that extend exclusivity automatically without renegotiation.
Tip: Strike out auto-renewals, or at least ensure you can opt out with short written notice (30 days is reasonable).
6. All-Encompassing Expenses
Some brokers include clauses allowing them to recover “reasonable expenses” – a phrase that can be stretched to cover everything from travel to glossy brochures. Without limits, these costs can quickly add up.
Red flag: Open-ended expense clauses with no cap or approval requirement.
Tip: Agree that any expenses above a modest threshold (say £200) require your prior written approval, and ensure there’s a total cap.
7. Restrictive Non-Compete Clauses
In rare cases, contracts may include non-compete clauses that prevent you from selling your business independently or even from engaging other advisors for a long period after termination. These are often unenforceable, but they can still cause headaches.
Red flag: Any term restricting your ability to work with other brokers or sell independently after the contract ends.
Tip: Avoid post-termination restrictions altogether.
8. Unclear Fee Triggers
Another common issue is ambiguity around when fees are payable. Some contracts demand payment on exchange of contracts, others on completion, and some even when a “heads of terms” is signed – regardless of whether the sale ultimately goes ahead.
Red flag: Fees payable before the transaction is fully completed.
Tip: Ensure commission is only payable on legal completion of the sale when money changes hands.
Real-World Examples
To illustrate, consider two scenarios drawn from common disputes:
- Case 1: Midlands Company
A West Midlands business signed with a broker on a 12-month exclusive mandate. A competitor later approached the seller directly and a deal was struck without the broker’s involvement. The broker nonetheless claimed 8% commission (around £40,000) because the sale occurred during their mandate. The seller spent months in legal dispute before settling to avoid court. - Case 2: The Hidden Renewal
A London business owner signed a contract with a small upfront fee and thought they had a six-month arrangement. They failed to read the small print, which included an auto-renewal clause. A year later, when the café finally sold, the broker demanded their commission – even though the owner thought the contract had expired.
How to Protect Yourself
1. Read Every Clause Carefully
It sounds obvious, but many sellers skim-read contracts or assume they’re “standard.” Brokers may rely on this. Read the agreement line by line, and don’t sign anything you don’t understand.
2. Seek Independent Legal Advice
An experienced solicitor can quickly spot unfair terms. The cost of legal advice is minimal compared to the risk of paying tens of thousands in unnecessary fees.
3. Negotiate Terms Upfront
Brokers charging percentage fees and including dodgy clauses as above expect negotiation! Reputable brokers do not (we never negotiate our fees – they are fixed at the outset). Push back on exclusivity, commission scope, and tail periods. A reputable broker will be open to reasonable adjustments; resistance may be a warning sign.
4. Keep a Paper Trail
Document all correspondence with the broker, especially around introductions and expenses. This can be invaluable if a dispute arises.
5. Do Your Due Diligence
Research the broker’s reputation. Look for reviews and testimonials, and whether they are members of professional bodies such as the International Business Brokers Association (IBBA).
Conclusion: Stay Alert, Stay Protected
Selling your business should be a milestone – the reward for years of hard work. Don’t let hidden clauses in a broker’s contract turn it into a nightmare. By watching out for long exclusivity periods, vague introduction definitions, unreasonable fees, and auto-renewals, you can protect your interests and ensure your broker works for you, not against you.
Above all, remember: a fair contract benefits both sides. A good broker will want clarity just as much as you do. If a broker resists transparency or pushes back against reasonable changes, take it as a warning sign. There are plenty of honest, professional brokers out there – and they’ll be more than happy to agree to terms that are clear, fair, and focused on achieving a successful sale.