What Costs Are Involved When Selling Your Business?

When planning to sell your business, it’s essential to understand that you will inevitably face certain expenses once the sale process gets under way. And it’s only by factoring in these additional costs that you can arrive at a true estimate of what your net profit from the exercise is likely to be.

So, here’s a look at some typical items you will need to take into account.

Preparation for sale

The look and state of repair of your business will set the tone for the sale. In essence that means you must spend money to repair, renew and/or replace any careworn real estate and business equipment in need of attention.

Optimizing the visual look of your office or business location is the first step towards giving your prospective buyers confidence that they are buying into a well-run business which is clearly in very good order.

So, money wisely spent here will have a positive impact on the kind of deal you will be able to strike when the time comes.

Due diligence

In theory, due diligence is a matter for the buyer. Nevertheless, seller-side due diligence is a good way to ensure your business will be properly presented at sale time with no nasty surprises to be unearthed by a buyer’s team. These would, unchecked, have the potential to lose the buyer’s confidence and derail your chances of making any sale.

Depending on your business sector, you are likely to require the services of an experienced lawyer and perhaps other professionals to make sure your business is subject to thorough scrutiny.

Once again, this is always a wise investment which will identify the areas you must attend to before listing your business on the market. Your enterprise will probably be worth more as a direct result of this action and is also likely to sell much sooner.

Appointing a business broker

A broker is a professional who will coordinate the preparation of your business sale. Such services involve far more than simply listing and marketing the business. Other matters a broker will most likely handle include qualifying any potential buyers, arranging non-disclosure agreements, overseeing initial negotiations and then closing the deal to gain you the best possible price.

In some specific instances there may be business transfers which do not require a business broker as an intermediary. However, the vast majority of business sales will run more smoothly and return a better sale price if you appoint a business broker.

Of course, that makes choosing the right broker extremely important. And while you should expect to pay a reasonable fee for a good broker, you must also ensure your would-be representative has good contacts with prospective buyers and is thoroughly experienced in selling businesses within your sector.

Smaller sale transactions may attract brokerage at a rate of around 10-12% of the final purchase price. However, larger business sales for bigger sums may attract a tiered commission rate. Just be sure you understand your broker’s fee structure and know exactly what services will be delivered.

Other fees and expenses

Your attorney fees will vary according to the time spent and the complexity of the sale. Nevertheless, you can still ask for an estimate. And, if you are buying into a franchise arrangement, there may well be a franchise transfer fee to pay.

If your sale involves any kind of lease assignment, then this too could generate a fee. This is to cover the costs which can arise when a lease is transferred to a new person. In rare cases, a landlord may actually be entitled to a certain percentage of any business sale to a new owner—another matter it’s important to be aware of.

In the area of finance, any early closure of a mortgage, loan or other line of credit is likely to involve some kind of penalty for repayment prior to the end of the finance term. Once again, this is an amount you will need to quantify and include in your calculation of sale profits.

And finally, the sale of real property alongside your business may leave you obliged to pay transfer taxes to the government. An adviser can often help to limit the scale of such demands, for example, by suggesting your sale is structured in a certain way. However, it’s wise to initially assume you may be liable for the full amount.

Author: Bruce Hakutizwi, USA and International Accounts Manager for BusinessesForSale.com, the world’s largest online marketplace for buying and selling small and medium size businesses.  Bruce has over 7 years’ experience working within the US business transfer marketplace connecting buyers and sellers.