The Cost of Selling A Business in Palm Beach County
Selling a business is not without costs, but most of those costs (including the commission) are not incurred until and unless the business actually sells. The average commission cost is at least ten percent for small businesses, and in many cases may be the only actual cost incurred by the seller. A seller’s costs to the landlord, attorney, and accountant should only be incurred until and unless the buyer and the seller obtain a meeting of the minds on the basic deal structure.
The Cost of the Broker’s Commission When Selling Your Business
- No reputable business broker should charge any up front fees when selling your business.
- A competent business brokers understands the necessity of working strictly on commission.
- In exchange for the seller abiding by the terms of the listing agreement, the competent business broker agrees to only get paid if the business sells.
- This allows the seller to avoid any up front costs and devote their time and resources into running their business.
- Business broker commission rates are higher than residential or commercial realtor rates because of the increased costs and time involved in confidentially procuring a qualified business buyer, along with the experience and expertise associated with business sales and transactions.
Attorney Costs Vary Widely As A Cost of Selling Your Business
Some sellers of businesses choose not to use an attorney at all because they feel competent enough to read and understand the purchase contract, and are confident enough to take measure of any risks associated with the deal. Other sellers may have a family friend who is an attorney and may simply seek their ‘free’ advice.
Sellers Who Choose to Use Attorneys Should Find Competent Business Lawyer
The sellers who do choose to hire an attorney should do their own due diligence and find a business transaction attorney with an hourly rate that is within the seller’s comfort zone. An overlooked aspect of hiring a business attorney is finding one with the sufficient time to promptly work on the deal. Delays caused by attorneys may cause serious harm to the deal and cause ill-will for either side.
The More Complex the Deal and Purchase Agreement the Higher the Attorney Costs for Business Sales
The actual attorney costs depend on what the seller wants their attorney to do. Normally sellers who use attorneys have them draft and negotiate the purchase contract and handle the closing. The costs increase the more complex the deal and the more complex the purchase contract.
Accounting Costs May Be Incurred By Seller When Selling Business
- Most sellers use an accountant who do their taxes and compile quarterly or annual profit and loss statements for the business.
- If the accountant communicates with the buyer or the buyer’s accountant, generates more detail statement of the financials such as a general ledger statement, or locates financial documents that the seller provides the buyer, then the accountant may charge the seller hourly fees for these services.
- Many sellers may avoid most of these accounting costs by keeping clear and concise financial records.
Seller Should Not Incur Attorney or Accounting Costs Until Buyer is Found
The role of an attorney or an accountant in a business deal generally should be very limited until and unless the seller and the buyer have a meeting of the minds as to the purchase price and basic framework of the deal. The general rule of thumb is that neither an attorney nor an accountant is needed until a Letter of Intent (LOI) is signed. At that point, the seller will know that there is a serious and qualified buyer in place who has signed a written document (the LOI) containing the salient points of the deal. There is no need to incur pointless costs on an attorney or an accountant until this occurs.
Paying the Landlord An Assignment Fee When Selling Your Business
- Some commercial leases contain various assignment fee clauses whereby the current tenant (or seller of the business) pays the landlord a ‘transfer’ or ‘assignment’ fee in order to transfer the lease to the new tenant (or the buyer of the business).
- Very seldom are these costs unreasonable because the landlord may not generally impede a lease transfer.
- The cost is normally a maximum of one month worth of rent (typically it is less than this amount).
- Most importantly, sellers should examine their leases well before the selling process begins and take note of any assignment fee.
Taxes and Other Governmental Costs of Selling Your Business in South Florida
The tax consequences of selling a business has many moving parts and should certainly be addressed with an accountant in order to afford the seller with the most advantageous tax consequences. For larger and more complex transactions, the deal structure and allocation of the purchase price is a negotiable issue where the buyer and seller’s desires may conflict.
Long Term Capital Gains Tax Normally Applies to Business Sales
The long term capital gains tax rate is generally 20 percent of the purchase price (minus the taxable ‘cost basis’ of the business). State sales taxes may also be owed if there is a substantial amount of inventory associated with the sale, but this is rare and can generally be avoided.
Business Sales Not Reported to Governmental Agencies
Unlike real estate sales, business sales are not reported to any governmental agency. Documentary stamp taxes are not owed unless there is a qualifying Seller’s Note involved in the deal. No property taxes or title insurance costs are owed because no real estate is involved.
Closing Costs When Selling Your Business
Attorneys generally charge as much as $1500-2,000 to conduct a business closing (including drafting a closing statement). Other closing agents charge less and some business brokers include the performance of the closing in their commission. Such closing costs generally are split between the parties or are a matter (like everything else!) for negotiation.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business and to discuss the costs of selling your specific business.