The Hidden Costs of Selling a Business-And How to Budget for Them

1. The Hidden Costs of Selling a Business-And How to Budget for Them Selling a business can be an exciting, life-changing experience. It tends to involve rather more than the price a seller is hoping to get for it, however. In addition to a number of other financial costs associated with making the sale, most sellers consider but one item: the eventual price paid. These are so-called "hidden" costs. Knowing these costs in advance and budgeting for them will be the best options to give the seller much ease wading through the process and escaping most of those cold surprise showers. According to Alan Mehrez, a seasoned business broker, the key lies in anticipating these costs.

2. 1. Broker or M&A Advisor Fees The most prevalent expense when selling a business pertains to either a broker's fee or the fee of a mergers and acquisitions advisor. Not all the owners of firms use brokers when selling their entities, but most use them as they make the process of sale less cumbersome and may bring in potential buyers and negotiate better deals. They generally take a commission regarding sale price, normally in the range of 5-10%, depending on the size of the business and the role played by the broker. Sometimes in larger businesses, the fee arrangement may be done in tiers when commission becomes lower if the sale value goes upwards. According to Alan Mehrez, one weighs the commission cost against, of course, the benefit derived from dealing with a broker. Every investor should ask about the fee structure early enough in order to minimize surprises from their broker. 2. Legal Fees Selling a business entails a lot of paperwork of a legal nature: contracts, NDAs, asset purchase agreements-a lot of papers that require expertise to make sure everything is legally proper and covers both the seller's and buyer's interests. The more complex the deal is, the higher the legal fees are likely to be. One attorney alone can cost anything from $5,000 to $50,000 and upwards, depending on the experience of the lawyer involved, the size of one's business, and also the

3. complexity of a transaction. Understandably, your business could be under an asset sale model or have many regulatory hurdles; accordingly, the legal costs would grow. As Alan Mehrez always says, never take any action in the sale of a business without consulting an experienced lawyer to guide you through the transaction in order to avoid unnecessary complexity. 3. Tax Consequences One of the greatest areas of business sales costs over-looked pertains to the tax implications on sale. Many times, much understanding in advance of what this could be is quite a good hand for helping prepare against it, therefore lowering the hit your proceeds would take. When selling a business, the nature of sale in itself-a stock-sale or asset sale-makes a world of difference in your tax liability. In an asset sale, you are liable to pay capital gains tax on appreciation in your business assets, probably including inventories, intellectual property, and real estate. A stock sale may, on the other hand, trigger taxes on the total gain from sale of shares. It will depend on many factors that include, among others, how your business is structured, length of ownership, and any exemptions or tax incentives to which you may be entitled. For example, if you have owned the business for a number of years, then you may be eligible for long-term capital gains treatment that could lower your tax liability.

4. Before you ever put your business on the market you should consult with a tax professional. He or she can help you structure the deal in such a way as to minimize your taxes, thereby increasing your after-tax proceeds. 4. Paying Off Debt and Liabilities All the claims against the business should, as a rule, be settled prior to selling and consumption of the business; that would cover outstanding loans, credit lines, leases, and accounts payable; in most situations, buyers wouldn't want the debts of a business. As such, for the seller has to clear these liabilities either prior to or during the time the sale of business is being realized. The amount of your liabilities will vary, but not taking those liabilities into consideration will make all the difference in the world in your net proceeds. Also, if you have long-term contracts with either vendors or clients, there may be some termination fees or penalties associated with terminating these agreements. Consider these costs by putting in consideration the extent of your current liabilities and arrive at a decision on how much will be required to clear them before the sale. According to Alan Mehrez this may make buyers upfront about liabilities and not drag a sale hence smooth negotiations. 5. Severance Pay and Employee Benefits If you have employees, your employee-related expenses might include things like severance packages or unpaid time off. Also, if you sell your business, the buyer may

5. not want to take on all of your employees. In some cases you are required to give a separation package or money upon transition. Severance pay can vary a great deal depending on length of time employed, the position of the employees, and your company's contract conditions. Other employee benefits, such as a pension plan or stock options, might also be touched upon in the sale. Good budgeting allows the estimation of the costs due and preparation for them among the employees. As Alan Mehrez illustrates, being clear about the cost pertaining to the employees may avoid expensive negotiations besides having healthy relations with them through transition. 6. Escrow Fees and Holdbacks It is not uncommon to see buyers place conditions where part of the sale proceeds has to be held in escrow for some time after the sale. This could be for warranty execution by the seller, execution of the non-compete clause, or even claims arising post-deal consummation. The amount actually held in escrow varies, but know that this is something you budget for because you will not be taking possession of the entire sale amount directly. Escrow fees, generally paid to the agent for escrow, run the gamut from a few thousands up into the tens of thousands, based on the sale price.

6. Before proceeding, Alan Mehrez advises that the terms of any escrow agreements be negotiated to minimize their impact on your cash flow post-sale. 7. Due Diligence Costs In the due diligence process when a sale takes place, due diligence-the onus of checking the financial, legal, and operational aspects of your business in view-would normally fall due upon the onus of the buyer. It can be just as expensive for the seller. Very often, sellers have to hire experts-like accountants-get the financials in order; prepare all documents that are called for and make sure all disclosures have been full and complete. Due diligence preparation may include such costs as the following, among others: Accountant fees for the audit of financial records Costs of updated business valuations Fees to obtain regulatory compliance Though these expenses may seem preventable, they at times are worth making the sale as smooth and successful as possible. Proper budgeting for them will speed up the process and often saves dollars. 8. Relocation or Transition Costs You might be requested, with relation to type and kind of sale along with buyers' intent to continue your stint at the firm even beyond closing, say anything from management

7. support for transitional activities right to introduction of executives into key operations support. You may also be out of pocket for relocation costs for yourself or your family-particularly if the sale forms part of a wider life change, such as retirement or to further a new venture. Transition costs are all over the place, so important it will be to embed all these in your budgeting plan for less stress at the end. "Sellers must consider different scenarios once transitioning out of their business to go ahead to the next step both smoothly and comfortably". 9. Marketing and Listing Costs If you publicly list your business for sale, there will be a cost to market your business. These can come in the form of listing fees on websites for business-for-sale, ads in business magazines, or even within industry-specific marketing channels. These can range from several hundred dollars up to several thousand dollars, depending on the site and the breadth of your marketing. It thus will help in saving the overspending during marketing if one has a clear idea of these costs beforehand.

8. Conclusion Selling a business is not that easy, and there are numbers of hidden costs involved that have to be taken into consideration. Brokerage, lawyers, taxes, and employees are few which will be added in the list of expenses. Therefore, it is wise to plan well in advance for budgeting for these so-called hidden costs so that your sale can go through without glitches and thus be prepared for all the financial implications of this important decision. Then come in the pros to handle such transactions smoothly for you, inclusive of brokers, attorneys, accounts, and tax advisors-for instance, Alan Mehrez with a wide experience in every sale you will get good exposure to so you get yourself the best possible results.