Most transactions involving intermediaries generate additional costs, so selling a business will be no different in that respect. But if you don’t want any surprises when the final tally comes around, the smart approach is to factor in what you know about the costs well before you approach the final negotiation with your buyer.
If you do this, you’ll at least have a clearer picture of what will be due to you as you settle on that final figure and put pen to paper. Here’s a rundown of those regular sale-side costs:
Business broker commission
Probably the major selling expense. For a modest transaction‚ your commission will usually be something like 10 to 12 percent of the sale price, unless you have agreed some other arrangement with your preferred business broker. But if it’s a more substantial sale, then you’ll be looking at the application of tiered commission rates.
Attorney fee
Your attorney’s costs will be governed by what work there is to do. If the deal is a little complex, say if there’s real estate to be disposed of alongside the business‚ or if there’s a franchise agreement somehow involved as part of the deal, then this will increase your legal expenses.
Even without knowing the details, you can be sure that if your attorney has to spend more time on the sale, then it’s going to be reflected in a higher cost. How much so will really depend on whether you are charged an hourly rate or have been smart enough to agree a flat fee for some, or all, of the legal processes involved.
Transfer fee
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When there’s a franchise tied up in the sale arrangements, passing over the franchise to a new owner will probably mean you paying a transfer fee. Most franchise agreements include a clause to the effect that this fee is required to cover the additional expenses the franchisor will thus incur.
In the same way that your own franchise application was carefully vetted prior to launch, the franchisor will want the prospective new franchisee to undergo the same process. This will result in some further costs, including, for example, the need to draw up a fresh set of documents to action the transfer.
The take home point here is to check this out carefully if you have a current franchise deal, or you could be in for a very costly surprise.
Assignment fee
Your business lease may include a clause which specifies an assignment fee will be due if the lease is to be reassigned to a potential new owner. Much like the franchise transfer, your landlord will justify the charge by pointing out the extra costs which will be incurred in negotiating and then drawing up a fresh lease agreement to reflect the change of ownership.
So, here again, this is an important check to make before you list your business for sale because of those potential cost implications.
Prepayment penalty
Depending upon what loans or mortgages apply to your business and/or other real estate involved in the sale, you will need to check whether or not the closure of such contracts will trigger any prepayment penalty clauses.
In some instances, there may be substantial charges involved, especially if the sale occurs fairly early in the term of an agreement. Another factor which will be reflected in the amount of any prepayment penalty is the outstanding balance, with a higher balance amount likely to generate a more costly penalty.
Any early termination fees can, of course, be checked out before the sale as part of your pre-sale due diligence and factored into your selling costs. With certain finance agreements, there is a possibility your lender may agree to allow your buyer to take over the repayment responsibilities, which would then avoid triggering a prepayment penalty.
Lease terms include a sale of business fee
A number of leases now include a clause which states the landlord will be entitled to a percentage of any business sale concluded within the term of the lease. Of course, you will probably be well aware if this is the case, but you must take care to see that this contingency is properly addressed in the sale contract.
Transfer taxes
If you’re selling property in with the deal, you might incur government transfer taxes in certain states. If so, there are sometimes measures which can be taken to structure the deal to limit, or even avoid, such charges. Should this be a consideration, it’s best to include the full amount in your preliminary cost calculation.
Author Bio
Bruce Hakutizwi is Director of North America for BusinessesForSale.com, the world’s largest online marketplace for buying and selling small and medium size businesses.
