Fees and Costs for Selling Your Business
Fees and Costs for Selling Your Business As a business seller, you’ll encounter various expenses at the closing table, and estimating these costs is crucial for understanding your net sale proceeds. Many business owners overlook this step and end up disappointed with their final check. Here are the typical costs you can expect: Taxes Selling a business comes with several tax implications, making it crucial to understand how much you’ll owe in taxes. This is likely the largest cost of selling your business. Minimizing your tax liability is essential to avoid any unexpected surprises, and this is where an accountant can be invaluable. Moreover, if you are selling real estate along with your business, you may need to pay real estate transfer taxes depending on your location. Business Broker Fee This is likely your second largest expense. For smaller transactions, commissions typically range from 10% to 12% of the purchase price, or a fixed amount agreed upon with the broker. For larger transactions, commissions are often tiered. Attorney Fees Attorney fees vary based on factors like the deal’s complexity, whether real estate is included, and if a franchise agreement is involved. Attorneys charge for their time and expertise, so the more time spent, the higher the cost. Some attorneys bill hourly, reflecting the actual time spent, while others offer a fixed fee based on an estimated time commitment. Accountant Fees An experienced accountant will help you assess the tax implications of the sale. Like attorneys, most accountants charge an hourly fee, but they may also offer fixed-price options based on the services provided. Both attorneys and accountants play a crucial role in ensuring all legal and tax issues are resolved before the sale. Transfer Fee If you’re selling a franchise, your franchise agreement likely includes a “transfer fee.” This fee covers the franchisor’s costs in evaluating the buyer and preparing necessary documents. Be sure to account for this fee when setting your sale price and calculating your net proceeds. Lease Associated Fees Some leases include an assignment fee triggered when you request to transfer the lease to a buyer. This fee covers the landlord’s expenses for legal reviews and preparing the lease assignment. Review your lease to see if this applies to you. Certain leases require the tenant to pay the landlord a percentage of the business sale or a fixed amount upon selling the business. Though once rare, these clauses are becoming more common. Review your lease to identify any such contingencies. Debt Prepayment Penalty If you have an outstanding mortgage, credit line, or loan associated with your business or property, you might face a prepayment penalty upon sale. These penalties can be substantial, so they must be factored into your sale price. Sometimes, assigning the obligation to the buyer can avoid the penalty. These are the primary costs associated with selling your business. Additional costs, fees, and penalties may apply depending on your specific transaction. Understanding your obligations before listing your business and signing contracts is essential. If you fail to account for these costs, you might not only miss out on a profit but could also end up paying out of pocket to close the deal. Be prepared to avoid unexpected surprises.
Prepare a business for sale
Elevating Your Business Sale Preparation with Accel Business Advisors in 2024 If you ever think about selling the business you have built and run for so many years, it is important you have a clear plan and a good advisor by your side. Preparing a business for sale is a multifaceted process that demands meticulous attention to detail and strategic planning. Accel Business Advisors, renowned for our expertise in facilitating business sales, play an instrumental role in enhancing the readiness and attractiveness of a business on the market. Here’s how we can elevate the preparation of a business for sale: 1. Financial Preparation and Analysis: We assist in organizing and analyzing financial records meticulously. Our expertise helps in presenting clear and comprehensive financial documentation, including profit and loss statements, balance sheets, and cash flow reports, crucial for instilling confidence in potential buyers. 2. Operational Optimization and Documentation: Our guidance extends to optimizing operational efficiencies and documenting key processes. With Sunbelt’s support, businesses can streamline operations and document essential procedures, showcasing a well-structured and sustainable operation attractive to potential buyers. 3. Strengthening Business Relationships: We emphasize the importance of nurturing customer and supplier relationships. We bring in experts who can provide insights on strategies to enhance customer loyalty and fortify supplier connections, contributing significantly to the business’s perceived value during the sale. 4. Enhanced Presentation and Marketing: Our guidance extends to the visual appeal and marketing materials of the business. Accel advisors help ensure that the business’s physical appearance and marketing materials accurately represent its strengths and potential, creating an impactful first impression on potential buyers. 5. Professional Guidance and Due Diligence: Engaging Accel Business Advisors means tapping into our wealth of experience and expertise. Our team of professionals, including entrepreneurs from a wide range of industries who owned businesses before, collaborate to conduct comprehensive pre-sale due diligence, identifying and addressing any potential issues before we proceed with the sale process. In summary, Accel Business Advisors bring a wealth of specialized knowledge and industry experience to the table, significantly enhancing a business’s readiness for sale. Our meticulous approach to financial organization, operational streamlining, relationship strengthening, and professional guidance elevates the preparation process, positioning businesses for a successful and profitable sale. By leveraging the expertise of Accel Business Advisors, business owners can navigate the complexities of preparing their business for sale with confidence, knowing they have a dedicated team working towards maximizing the value and attractiveness of their business on the market.
The Process of Selling a Business
You should run your business as if you are always preparing for its sale. We see many business owners that have to sell for unexpected issues, such as medical, partner, family issues, or even burnout. Many business owners find the process of preparing to sell the business helpful in many ways, even if they decide the timing is not right for them to go through with the sale right away. By doing so, the business owner is paying attention to the important aspects of the business that directly drives value and eventual marketability. There are many facets of preparation to consider including some basics like keeping the business organized, make sure books and records are in order, make sure the facilities or work environment is attractive, and don’t write off personal expenses or at least keep good track of them. One major concern of potential buyers for many small businesses, is that customers will leave when the business owner is no longer involved in the business. If the business owner personally handles the relationships with key customers, it is smart to start having other members of the company involved in managing those relationships, perhaps even hiring a sales manager if feasible. This assures a smoother transition and mitigates the risk of losing critical customers. Potential buyers will also want to see the company is not dependent on one supplier, one vendor, or even key employees. Even if a business owner has 100% confidence in the reliability of the supplier, vendor or employee, a potential buyer will be more comfortable seeing that there are backup relationships that can be easily activated if needed. Also, having a clean set of financial books is very important for the sale of a business. With a small business, the line between a business expense and personal expense is not always clear. Small business owners often have their businesses pay for their car expenses, entertainment, cell phones, and a host of other “discretionary” expenses. These expenses, and others like them (family members on payroll), tend to drag down earnings and confuse the true profit of the company. This lowers the potential perceived value of the business and can also make it much harder for a potential borrower to get financing. The process is going to vary based on the specifics of the business and business broker involved. However, we can provide a sense of how the process works. There is an initial meeting between the business owner and business broker. In the meeting, the business broker will want to learn about the business, reason for considering selling, and educate the owner about the sale process. It’s also important to understand if the owner is really prepared for a sale and if the business owner has a plan about what happens afterwards and is emotionally ready to give control of the business to another person. A very important first step for both broker and seller includes a conversation on how much the business might be worth. The next step is often for the Broker to provide an Opinion of Value or have a Business Valuation completed. If the business owner is ready to move forward and there is an agreed upon value expectation and asking price, an engagement letter can be signed to move forward. After the business owner decides to formally engage the business broker, a CBR or confidential business review will be put together and approved by the owner. This document is designed to answer most of the questions that potential buyers of the business will have. This part of the process generally takes 2-3 weeks. With the CBR done and the marketing plan determined and in place, the marketing process starts. Without compromising confidentiality, high level information about the business will typically be posted on the broker’s website and online sites like BizBuySell, Bizben and other business-for-sale directories. The business information will also be shared with all the other brokers in the organization to promote the business with buyers they work with directly, and it will be marketed to the existing database of buyers who have been working with the firm both previously and currently. Additionally if appropriate, we will contact potential strategic buyers, such as those operating a similar business as that of the buyer, and possibly Private Equity Groups. For many businesses, we will start getting interest from potential buyers within weeks. On some deals, we could get substantial interest very quickly. For example, we recently listed a successful sign manufacturing company and received interest from 40 buyers within 4 weeks and had 4 full price offers within 8 weeks. However, some businesses can take quite a bit longer to find the “right” buyer. One of the biggest services provided by business brokers is identifying high potential buyers. Before a prospective buyer meets the business owner, there is often several calls and meetings with the broker. Typically, there is at least one in-person meeting between the potential buyer and seller. If the potential buyer wants to make an offer, they will submit an offer to purchase or letter of intent. This typically includes: the offering price, the terms of payment, what they expect to receive for that price, what the deal is contingent upon, an exclusivity provision, confidentiality, and other terms. Then, the hard work of due diligence, lining up financing, and getting a contract put together begins. In cases where there is bank financing involved, this part of the process can take 2 to 3 months. Contingencies are those items and activities that must happen before the deal can close. The three largest contingencies of the deal are financing, satisfactory due diligence, and license or lease transfers. Once the potential buyer has a price and information about the business, they can now go to banks and financial institutions and ask for loan. The deal is often contingent on the seller being able to get such financing. We often help with the process by introducing the buyer to lenders with which we
Deal Killers and How to Slay Them
Most owners say that they want to exit their businesses within the next five years. Most of those owners will fail to meet this goal; many won’t even be positioned to begin the sale process by the time their target exit dates pass. The reason for so many missed targets often lies with the owners’ failure to identify and address the eight biggest deal killers. Deal killers are conditions that destroy a company’s salability if they are left undetected and unresolved until the sale process starts. Here are the top eight, and how to slay them: 1. The belief that you can sell your business today and satisfy your financial independence needs and wants. 2. The failure to reconcile your need for value with the market’s perspective of value prior to going to market. 3. An exclusive focus on top-line sale price. These three deal killers stem from incorrect or misguided assumptions. Many owners vastly underestimate how much money they will need post-exit, while overestimating the value of their companies. This deal-killing combo causes myriad problems, including tainting the marketplace. The best way to slay these three deal killers is to engage in pre-sale planning. Getting a sale-price estimate for your business from a business broker or investment banker is paramount. Working with a tax professional to minimize taxes and fees will get you closer to the net proceeds necessary for financial independence. Assembling and using a deal team long before your targeted exit date will prevent a false start that damages your company’s value should you decide not to sell. 4. Failure to preserve a company’s most valuable asset. Retaining key employees post-sale is critical to a successful business sale. Most buyers view key employees as essential and may not be interested in acquiring a company if they leave. Owners sometimes forget how their exits will affect key employees, causing them to jump ship or, worse, blackmail an owner for a cut of the sale price to stay with the company after the owner leaves. The best way to slay this deal killer is to motivate and “handcuff” key employees. Creating non-qualified deferred compensation plans, stay-bonus plans, and non-solicitation agreements are good ways to keep key employees on after you leave or, if they do leave, assure that they don’t harm the company. 5. Believing that you can negotiate alone. 6. Unwillingness to hire and use a strong deal team. Most business owners don’t have the experience necessary to sell their businesses by themselves for the money they need. Buyers often assemble crack teams of advisors to negotiate the lowest possible price and best deal terms for their businesses. Lone-ranger sellers are often overwhelmed by these professionals, causing them to leave huge sums of money on the table. The solution is to build a best-in-class deal team that will help you navigate the nuances of a business sale. The returns on your investment in the strongest possible deal team can be exponential. 7. Believing that pre-sale due diligence isn’t worth the time, effort or cost. Pre-sale due diligence can be costly, but foregoing it can be devastatingly expensive. Buyers will have high expectations when paying a high price for your business, so any unrealized or unaddressed flaws in your company can damage its value to the buyer or, worse, kill the sale. Getting out in front of any problems that your company may have will eliminate the risk that the buyer finds a flaw in your business that you didn’t recognize. The solution to this deal killer is to engage your deal team in pre-sale due diligence before you go to market. An ounce of prevention is worth a pound of cure. 8. Seller’s remorse. Selling a company that you’ve built can be hard. Emotions can run hot, leading to cold feet. Getting cold feet, especially toward the end of the sale process, isn’t uncommon and can lead to lost money, production, and time. There are a number of solutions to this deal killer, the most important of which is to talk. Talk to your advisors, family, and other owners about your post-exit goals, needs, and wants. Find things that you want to do after you exit before you exit. Make sure that the business isn’t your life before selling. Each of these deal killers is preventable. You must discover and eliminate them before you take your company to market. Owners usually don’t have the time or experience to do this alone. We suggest working with planning-based advisors experienced in helping owners grow, protect and transfer business value.
Growing Through Mergers & Acquisitions
10 Questions to Ask Every Acquisition Target 70% to 90% of all acquisitions fail to achieve the results acquirers want. Why? Most often, failure is directly tied to the integration plan and frequently, to diligence that wasn’t quite as effective as it could be. According to a 2015 industry study by McKinsey & Company, companies with the best M&A results have strong capabilities in post-close integration. We’ve found that high performing M&A firms use the diligence exercise to gain critical insight into the target company, its management, key employees, its culture, and its customer relationships. They take a hard look at not only the financial numbers, but at the intangible assets that drive a company’s success plan. Most importantly, they have tools and processes to statistically document the value of the intangible and help them see into the future. They start building relationships with the potential target throughout the due diligence process, months before close. In every case, the expectation post-close is that the value of the deal will increase. So how do you predict future success? Here are ten questions our highest performing clients ask every potential acquisition: 1. How closely aligned is the target company to its customers, and specifically to customers’ needs and expectations? 2. Who are the target company’s best customers (those who buy the most)? How do those customers perceive the company’s strengths and areas for improvement? 3. What are the industry’s key attributes, why a customer selects one company to do business with over another — and how does the target company perform against those attributes? 4. What is the customer concentration? Is it good for the long-term? How much of the business’ revenues are controlled by only a select few? Is there still more growth to be had from these few customers? If so, how? 5. What is the company’s share of wallet by customer (not just market share)? 6. What are customers’ perspectives on industry competition and how the target company compares? 7. What unmet or underserved needs do customers have, not only from the target company but from the industry? Where are the opportunities that have not been capitalized on? 8. What is the cultural fit (if a bolt-on) or the cultural opportunity (if structuring a new platform)? How hard will it be for existing management and staff to execute a future roadmap that is both operationally-oriented and customer-centric? 9. What are the priorities and action plan post-close? (The acquirer and acquired should collaborate on this plan before the deal is closed.) 10. Where are the starting points? This enables acquirers to determine what the impact the acquisition has on overall performance. To do this, an acquirer should measure not only the synergistic savings and revenue Increases, but also how much improvement there is in customer loyalty, satisfaction, and share of wallet.
Six Tips for Creating Company Value
What drives the value of a business? This is a primary concern for most business owners, whether they’re looking to sell in the short-term or position their company for future success. 1. Create a Company Succession Plan Most companies do not have a formal company succession plan. Company succession planning differs from personal or family succession planning, as it focuses on forming the next generation team of key managers and employees in a company. A company succession plan creates value by: Company succession planning does not have to be complicated but should include mentoring, employee engagement, open communication, and fairness. Senior managers should not feel as though the company’s plans include replacing existing managers. Instead, company succession planning should be viewed as a process of grooming all employees to take the company to a higher level of performance and growth. 2. Don’t Forget Qualitative Factors Quantitative factors such as changes in revenues, gross and net margins, operating cost, etc. are easy to identify and therefore easy for owners to focus their attention on. However, companies with above-average valuations excel in both quantitative and qualitative factors. Don’t overlook areas like: 3. Take a Retirement Account Perspective We’ve run into numerous business owners who say things like, “I’ll worry about the value of my company when I start thinking about an exit strategy.” That’s like waiting until you’re 65 to check the value of your retirement accounts! Company value creation is an ongoing process, which includes: A value growth professional can help you think about your business as an investor as well as an owner. 4. Protect Existing Value For most companies, 75% of company value is in its intangibles. Some of those intangibles are trade secrets, intellectual property, proprietary methods and/or software, customer relationships, etc. Business owners should identify key value drivers, then takes steps to protect those key value drivers, which will protect company value. Most business owners limit their actions to protect company value to obtaining hazard insurance, worker’s compensation insurance, and liability insurance. There are other ways to protect company value, including: 5. Create Customer Value The traditional notion of customer value, where benefits minus cost equal customer value, may seem simple but can be much more complicated in practice. Customer benefits and cost can be both direct and indirect, as can be customer value. Moreover, the right set of customer benefits can create barriers to entry and/or competitive advantages. Many business owners argue that customer value is created by providing consumers with the lowest price, highest quality, and best service. Unfortunately, those three factors are often at odds with one another. Instead, consider adopting a customer-centric approach, taking into account factors like: 6. Plan Ahead Business owners who don’t plan often find that they spend most of their time putting out fires. Planning allows company owners and managers an opportunity to set proactive goals and objectives for the intermediate future, as well as identify solutions for key business issues. A great starting point for long-term planning is to conduct analyses around issues like: Why your company is relevant to existing and future customers The list of tips shared here is far from exhaustive, but can serve as a guide for future initiatives. If you have any questions, feel free to contact us.
Are You Ready To Sell Your Business?
Here are a few industry inside secrets that may help you decide.
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Top 5 Things to Know about Terms and Conditions for SBA Loans
