Costs when Selling your Business
The costs you incur when selling your business vary greatly. Most transactions will generate additional selling costs. However, there are no clear-cut or pre-determined costs during the selling process. Depending on the services you chose, who you contract with, and what responsibilities you take on as the owner, it will impact the price you pay to sell your company.
Knowing what costs you may incur, will help you get a clearer picture of what you will pay when you settle on a final purchase price. Below are a few of the general costs you may incur.
Enterprise Valuation or Business Appraisal
A wise practice when selling your business is to obtain an enterprise valuation or business appraisal. A valuation expert will determine the value of your company and provide a detailed explanation of the business’s worth. Peak is happy to provide this service as a leading business appraiser in Utah and across the country.
Knowing the value of your company is valuable for several reasons. During the selling process, a valuation can help in determining a reasonable selling price along with assisting in negotiations. For additional information on reasons for a business appraisal, see our blog on Reasons to Obtain a Business Valuation.
Depending on the purpose of the valuation, the value of your company can be x or y. For instance, value can range whether you are selling to a family member, an employee, an outside buyer, or a larger competitor.
As a leading business appraiser in Utah, Peak provides high-quality business valuations at a lower price and in less time than anyone else in the market because of our unique approach to an established service. Obtaining a business valuation will bring credibility and serve as a gauge for your asking price.
Many owners prefer listing their business online for convenience and cost-effectiveness. Pricing for these online sites varies with the services offered. Each client decides what suit of services they need and what will be most useful. Many reliable sites charge around $50 per month depending on the suite of services. There are also additional marketing resources and informative resources which can be purchased from these sites.
There are many online websites to sell your business on including BizBuySell.com, BusinessBroker.net, BizQuest.com, among others. Cost-free listings, such as Craigslist, can be a good option if the entrepreneur prefers total control. Or many business owners prefer to network and sell their business to a friendly buyer.
Selling the business yourself can save you money and helps avoid paying a brokers commission. It is also the best route when selling your business to a family member or an employee.
For most transactions, hiring a business broker is the biggest selling expense. For small transactions, their commission is usually between 10-12% of the selling price. That is unless you have another prior arrangement. For larger transactions, the broker’s fee is on a tiered basis.
Business intermediaries like a business broker help manage the relationship between the seller and potential buyers. They can list your business, provide an opinion of value, promote the business through marketing efforts, organize consultations with prospective buyers, and negotiate contracts.
- It is important to note that an opinion of value is not a business valuation analysis. One of the primary reasons to obtain a valuation analysis deals with bias. A broker provides the opinion of value for free in order to entice you to sell with them. Whereas, a credentialed appraiser, is unbiased and impartial. The valuation expert ultimately is required to provide a credible analysis that is independent of the client.
Business brokers have vast experience working with both buyers and sellers. As such, they have an extensive network. They can help identify a good buyer for your business and help maintain privacy. Hiring a business intermediary provides a seller a big advantage. Even though Peak is a business appraiser in Utah, we have relationships with brokers across the country who we would be happy to connect you with.
Attorney and CPA
It is always advisable to consult your legal professional and CPA to help ensure no issues may creep up in the future. They will also help to ensure legal compliance and that the Company transition is smooth. In all stages of the selling process you should involve your legal representative and CPA. They can help prepare financial statements, file tax returns, negotiate contracts, and provide expert advice. These individuals have superior knowledge of business transactions.
Attorney fees will range depending on the work required of them. The more complex a deal is, such as if real estate or a franchise agreement is part of the deal, the higher these legal fees will be. The more time an attorney spends on the sale, the higher the cost. This cost also depends on whether you negotiated an hourly rate or a flat fee for the legal processes involved.
When selling a franchise, most require the franchise owner to pay a transfer fee to cover the additional expenses the franchisor will incur with transferring the license. This may include the expense of evaluating the potential buyer and drawing up a new set of legal documents.
Selling your business may lead to additional tax expenses, particularly if it involves real estate. How you structure the deal will also impact the tax expense. Speaking with your financial professional can help you understand how to negotiate the deal to limit or avoid your tax expense.
There are major costs associated with selling your business. As a business owner, your preparation can help make sure the listing price will cover these additional costs. It is also important to understand what your obligations are before you list the business for sale and sign any contracts. Business owners who do not do their research may encounter a situation where they not only do not profit from the sale but have to take money out of their pocket to close the deal.
Peak Business Valuation is here to help you understand the value of your business before selling. Through a business appraisal, your asking price will be more credible, and you won’t be leaving money on the table. Peak would love to help you get started with the process of selling your business.Schedule Your Free Consultation Today!