The Ultimate Guide to Understanding the Costs of Selling Your Business
Are you considering selling your business but feeling overwhelmed by all the costs involved? Look no further! In this comprehensive guide, I will walk you through everything you need to know about understanding the costs of selling your business. From evaluating your business’s worth to hiring professional advice and handling legal fees, we’ve got you covered.
Selling a business is a complex process with many financial considerations, and it’s important to understand the potential costs involved to make informed decisions. Our guide will break down each cost category, providing detailed explanations and examples so you can better estimate your expenses. We’ll also offer tips and strategies to help you minimise costs and maximise your profits.
Whether you’re a first-time business seller or have been through the process before, our ultimate guide will prove to be an invaluable resource. So, get ready to dive deep into the world of business selling costs and gain the knowledge necessary to navigate this challenging terrain confidently.
Making the decision to sell your business is a serious one. And one where you need to have a really good idea of how much it will cost to sell your business.
Factors that influence the costs of selling a business
When it comes to selling a business, various factors can significantly influence the overall costs involved in the process. One of the primary factors is the size and scale of your business. Larger businesses typically have more complex financials, more extensive documentation, and a greater need for professional assistance, all of which can drive up costs. Additionally, the industry in which your business operates can also play a pivotal role; some industries may require specialised knowledge or compliance with regulatory requirements that can add to the expenses incurred during the sale process.
Another crucial factor is the current market conditions. The demand for businesses in your sector can fluctuate based on economic trends, consumer behavior, and competition. High demand can lead to a quicker sale at a better price, but it may also require more investment in marketing and professional services to attract potential buyers. Conversely, in a buyer’s market, sellers may need to reduce their asking price or offer incentives to close the deal, which can further impact the costs associated with selling.
Lastly, the timing of the sale can influence costs as well. For instance, selling during a period of strong financial performance can justify a higher valuation, potentially reducing the percentage of costs relative to the sale price. On the other hand, if you are compelled to sell quickly due to financial distress or personal circumstances, you may incur additional costs like expedited services and lower sale prices, which can significantly affect your net returns. Understanding these factors can provide a clearer picture of what to expect in terms of costs when selling your business.
Different fees for different services
As well as legal fees (which we’ll cover later), you need to factor in other professionals’ costs. Let’s look at those.
Accountancy fees
When preparing to sell a business, your accountant will need to bring your accounting records up to date. This is because they will feed into the buyers’ impression of your business – and the information will be required by the business valuer. Company accounts are prepared as standard at the end of the financial year by your accountant, although you may incur an additional fee if you wish to fast track them. If you don’t have an accountant, you may choose to pay for the one-off production of company accounts.
Preparing your financials and documentation is essential to instill confidence in potential buyers and facilitate a smooth transaction. Accurate and organised financial statements, such as income statements, balance sheets, and cash flow statements, are crucial for demonstrating the business’s profitability and financial health. Buyers will scrutinise these documents to assess the viability of the business and its potential for future growth. Therefore, investing time and resources into ensuring these documents are up-to-date and accurate is worthwhile.
Consider conducting a pre-sale audit with the help of a corporate finance specialist to identify any discrepancies or areas for improvement within your financials. This proactive approach can help you address potential concerns before they arise during negotiations, allowing you to present the most favorable picture of your business to potential buyers. A well-prepared set of financials and documentation can significantly increase your chances of a successful sale and justify the asking price, ultimately minimising costs associated with the selling process.
Your accountant may be able to help you to structure your business sale to maximise value and tax efficiency.
You’ll also need your accountants assistance to help prepare or review completion accounts – so factor this in as well.
I would expect on a typical sale of £2-5m that your accountancy fees will be £10-20,000 plus VAT.
Corporate Finance
Since the cost of selling a business is linked to its value and to current market conditions, it’s a good idea to get a professional valuation to understand the true value of the business worth and any assets related to the company, if you also plan on selling them.
Accurately valuing your business is a critical step in the selling process, as it sets the foundation for negotiations and helps you understand the potential costs and benefits of the sale. Several methods can be employed to determine the value, including the income approach, market approach, and asset-based approach. The income approach focuses on the business’s ability to generate future cash flows, applying a capitalisation rate to estimate its present value. This method is particularly useful for service-based businesses where intangible assets play a significant role.
The market approach, on the other hand, involves comparing your business to similar entities that have recently sold. This method can provide a realistic benchmark for pricing your business, but it requires access to reliable market data and may be influenced by conditions that vary across different regions or industries. Lastly, the asset-based approach looks at the value of tangible and intangible assets, such as equipment, inventory, and intellectual property. While this method can provide a baseline valuation, it may overlook the earning potential of the business, leading to undervaluation.
Hiring a professional appraiser or business broker can help ensure that your business is valued correctly, which can ultimately save you money by preventing undervaluation or overvaluation. An accurate valuation not only influences selling costs but also helps in attracting serious buyers willing to pay a fair price. The cost of these services is an investment that can yield significant returns by facilitating a smoother sale process and maximizing your potential profits.
A deal advisory/corporate finance/business broker will provide services before, throughout and after the sale of your business. These include realistic valuation and advice and coaching on how to increase it, finding buyers, support with collecting documents, support in meetings, deal negotiations, and final transition support.
A professional valuation will take into account both assets and liabilities, so you will have a more balanced perspective on what is a fair business sale price.
Corporate Finance bods are great in business sales, but they charge a lot – can be 3-5% of the overall purchase price.
Advertising fees
You may want to enlist third-party help to advertise your business for sale.
Choose from brokers or an advertising platform. If you go with a broker, it’s worth choosing one that has industry-specific experience in your sector. This helps for a smooth transaction, and you’ll have more chances of getting the highest price for your business.
Tax implications of selling your business
Understanding the tax implications of selling your business is crucial, as it can significantly affect your overall financial outcome. When you sell your business, you are likely to be subject to capital gains tax on the gain made from the sale.
In October 2024, the Labour Government’s Autumn Budget changed taxes in relation to business sales – so it is always worth speaking with your accountant or a tax advisor in order to see what taxes you need to pay, and when, and whether any alternative structures can be put in place.
Real estate fees
You may be liable for costs related to selling property or dealing with leaseholder property, if you are also selling the commercial property your business is located in. These include conveyancing fees, estate agent fees, and mortgage redemption or arrangement fees where applicable.
Additional fees for selling a business: licences and permissions
Lack of important permissions can cause a sale to fall through, and as a business you need to periodically check that your licences and permissions are correct. Businesses change and evolve to customer demand – and you might end up providing something totally outside of your original licensing permissions.
Other than property permissions, there are waste removal licences, music licences, industry standards, ISO accreditation and so much more.
If a buyer finds things like this out of date, they may alter their offer as a result.
With such a variety of licences available, costs will vary greatly. Make sure you stay on the ball by doing regular reviews of your documentation.
How much will it actually cost to sell your business?
If you choose to work with me, I give a bespoke proposal for every job.
Typically, the baseline fees are between 1-2% of the overall deal value. However, sometimes that doesn’t quite work, particularly on deals below £250,000 – so I have a minimum fee of £3,500 plus VAT for the smaller deals. Generally speaking you’d be looking at £10000-50000 plus VAT for the majority of business sales I work on.
However, I’d much rather you give me a call on 0116 3667900 and have a chat about your requirements to see how I can help.
What are the next steps for your business sale?
My typical clients are probably like you – never sold a business before – and so I’ll guide you every step of the way.
Call me for a free no obligation chat on 0116 3667 900, email me steven@stevenmather.co.uk or click the buttons on the right of the page to use another method like WhatsApp or Messenger.
