When you sell your business, you expect to make money—not spend it. But as the saying goes, you have to spend money to make money. The question is, how much?
The answer isn’t always clear. However, most brokers agree that a certain amount of due diligence is necessary when preparing a business for sale. That means retaining qualified professionals to look over your books, guide you through legal processes, and anticipate various fees associated with selling.
As a seller, you’ll soon discover some costs are avoidable, some are essential, and others are optional. The list below covers some of the more common ones. For more detailed information, we encourage you to speak to a broker about your situation—we’re more than happy to advise.
1. Brokerage Fees
Speaking of essential costs, brokerage fees are the expenses that deliver the most bang for their buck.
“Often our fee is negligible compared to the money we’re able to garner for the seller,” says Transworld CEO Andy Cagnetta.
Every business owner should know that brokers are investments worth making. Brokers protect sellers’ best interests, answer their questions, anticipate complications, and smooth the selling process. They can—and have—saved business owners hundreds of thousands of dollars.
Good to know: broker fees vary greatly. Some ask for a percentage of the sale; which could vary based on the business’s value. In choosing a broker, just be sure to consider their experience, their reputation, and their resources. The one that’s right for you will have all these things in abundance and be ready to put them to work for you.
2. Professional Fees
This family of costs is closely related to legal obligations, liabilities, and risks.
Major influences include transaction complexity and structure: how easy or difficult will it be to sell your business? It depends on the current state of your operation, plus whatever it takes to bring it up to par.
For example, CPA fees related to bookkeeping fall under this umbrella, as well as that of due diligence.
Your broker should be able to recommend professionals they know and trust—industry experts they’ve come to rely on over the course of several years.
As Cagnetta says, “You can pay the wrong professional to learn about due diligence…or you can pay the right one to avoid the complexities.”
3. Hidden Costs
Brokerage fees you likely anticipated. Professional fees you might have anticipated. Hidden costs are—well, hidden. These are the expenses many business owners don’t consider when preparing to sell.
There are as many hidden fees in business transactions as there are businesses. We jest—but there are a lot, and they’re another reason we strongly recommend recruiting a broker. Just a few include…
· Taxes, tax leins
· Machinery/equipment appraisals
· Employee severance & vacation time
· Lease assigning issues & landlord negotiations
· Additional CPA fees to prepare books & records
· Prepayment penalties on leases or loans
Spotting hidden fees can be challenging because they come in so many shapes and sizes. Be on constant alert for openings that allow buyers, accountants, and lawyers to attempt re-trades or re-negotiations.
After all this, you may be wondering: are these expenses avoidable?
Perhaps. But to determine that, you’ll need a good broker—someone with the experience and resources needed to recognize avoidable costs. Brokers act as referees between the seller and other parties, protecting them and guiding them through complex proceedings.
Bottom line: brokers cost money, but they also save sellers much more money. In addition to that, they save time, energy, and peace of mind which can be priceless.
Transworld knows that running your business is the most important thing you can do as an owner, especially during negotiations. Contact us to learn how we deliver the most value to sellers, every transaction.