"Hidden Costs Selling a Business"
When you sell a business, it is important for you to realize that there are a number of costs involved with this process. At the same time, it must be emphasized that each transaction will be different, and it is difficult to accurately estimate the costs involved with selling a specific operation. However, there are a number of costs that you will want to become familiar with.
Once you have found a buyer for your business, you will need to begin the negotiation process. Once you have begun negotiating with a potential buyer, you will find out how much they are willing to pay. One term that you will want to become familiar with is assumptions.
Assumptions can be defined as items such as leases, which may be used in connection with equipment or insurance plans. In addition to this, an assumption may also include any financial obligations that your company has not met, such as business loans or any outstanding debt. During the closing, the assumptions will be prorated between you and the buyer.
Another important aspect of selling your business is taxes. During the closing, you may be responsible for paying both the payroll taxes and the sales taxes. Some taxes, such as those which are related to unemployment, may not be paid during the closing, but the buyer will expect you to pay them within a certain time frame.
If the buyer chooses to assume some of your obligations, you may need to make a deposit on behalf of the lessor. One good example of this obligation would be a lease. If this happens, the buyer will normally want to pay you during the closing, and once the lease is terminated, the deposit will then be in the control of the buyer.
If you are selling a traditional business that is located on a physical property, you will also be responsible for paying utility costs. A few days before the closing, the utility company will be given notice of the event, and they will make a reading on the day the closing takes place. The bill will be given to you, and any other charges which occur after the closing will be passed to the buyer.
If either party decides to use an accountant or attorney, they will be responsible for any necessary fees. These fees are often referred to as being professional fees. The person who is selling the business will generally be responsible for paying the attorney or accountant, and depending on the size and value of your business, these fees will vary.
If a business broker is used, the seller will be responsible for paying a commission fee. The broker will be responsible for appraising the business, as well as processing the data. Additional fees that you may find are those that are related to a lien searches or recording.
Too many times small business owners rush into the sale of their business and nearly always get slugged with addition cost. As a result, the profit they may have been expecting to make can be dramatically decreased, depending on the equity in the business.
Please find detailed below few hidden cost when selling a business:
- Cost of Solicitor;
- Cost of Accountant;
- Cost of Business Broker can be high as 10% of the final sale price;
- Any accounts payable;
- Payment of any outstanding loans, leases, contracts, etc;
- Cost of bringing the business up to speed (repairs, refurbishments, etc).
Selling businesses is not always an easy task. Along with making the emotional decision to sell your small business or family business, you have to make sure your business is ready to sell.
This tutorial was written by Peter Watson, CEO of Business Trader.
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