How Much Does It Cost to Sell a Business?
Whether you are retiring or moving on to the next venture, selling your business allows you to extract the value you've built operating and growing it over the years. To get the most out of the sale of your business, you must get a handle on its market value, and the expenses associated with selling it. In this article, we will cover the various costs involved with preparing your business for sale, marketing it, and ultimately closing a deal.
Business Broker
For most business owners, the largest selling expense is the business brokers' commission, which is typically 8-15% of the final selling price. Business brokers generally pay for themselves by getting business owners the best possible price at the best possible terms. They have a unique skill set, access to their own buyer data base, and experience in the market – all of which make them invaluable for business owners making their exit. Selling a business presents many unique challenges and having an experienced professional gives owners the best shot at getting across the finish line.
To read more about what a business broker will do, see What Will a Business Broker Do?
Pre-Listing Activity
Before you list your business for sale, you must make any operational changes necessary to maximize its value and prepare three years' worth of auditable financial statements.
Business Valuation. If you hire a broker, they may be able to handle the valuation and pricing, so the valuation expense is baked into the brokerage fee. In cases of larger and/or more complex businesses, a business appraisal may be justified. Business appraisers charge by project, and prices vary as much as businesses do, but expect the fee to start around $5,000.
A good middle ground is a comp analysis, where a service like BizBuySell's Valuation Report aggregates data of business sales by market and industry, then delivers "comps" of the most relevant business sales to generate a price range based on the most appropriate pricing multiple range. A simple comp analysis will run you $20 to $100. This is a cost-effective way to get a benchmark range to start, however most businesses merit a more formal valuation that takes into account operational and financial specifics before arriving at a price to market.
CPA Fees. You will need clean, accurate financial statements – at least three years of income statements, cash flow statements, balance sheets, and tax returns. Expect to pay anywhere from $1,000 to $5,000 for a CPA to produce these.
Business Improvements. One of the most important operational changes you need to make is getting your business to operate without its owner – you – involved in routine daily tasks. Investors and business buyers are on the lookout for businesses that run without the owner working full time. Often this means key employees will need to be trained and promoted into management and administrative roles. In some cases, management needs to be onboarded from outside.
It may also make sense to invest in new technologies and processes that can help you run your business more efficiently. Things like inventory management, point-of-sale systems, HR/payroll systems, and anything else you may have put off that can get things running more smoothly.
Finally – assuming your business has a physical location - there may be maintenance items that you've put off doing. Just like selling a home, a fresh coat of paint goes a long way. At some point, interested buyers will come visit the business, and it should appear as well-maintained as possible.
Depending on the complexity of your business and its current management structure, the cost to get your business into "selling shape" can range from zero to many thousands of dollars.
Listing and Marketing Costs
Once you're ready to put your business up for sale, you will need to get it in front of interested buyers and sell them on its value.
Listing Costs. Listing fees will vary by marketplace and by level of exposure. Most business for sale marketplaces offer options for distributing listings higher, or otherwise across more searches to increase the number of buyers that see them.
If you've hired a business broker to market the sale, then listing fees will be included in their fee. If you are going to sell your business directly, expect listing fees to be anywhere from $500 to $1,000 or more for a six-month engagement.
Marketing Collateral. As you begin interacting with potential buyers, you will want to easily convey the highlights of your business while maintaining some level of confidentiality. The most common format is the selling memorandum. This is essentially a brochure that you can send to potential buyers that highlights the nature of the business and the high-level financials. Typically, business sellers ask that interested parties sign an NDA before sending over the selling memorandum. This allows business owners to share more detail of the business without risking word of the sale getting out prematurely.
Again, your business broker will prepare a professional selling memorandum as part of the brokerage service. Brokers are experts at highlighting the most desirable aspects of your business and showing the value to potential buyers. They will also ensure an NDA is executed before sharing any details, to protect the confidentiality of your sale.
If you are doing the marketing yourself and are reasonably good with preparing rich documents, you can create the selling memo on your own. Some business owners prefer to have a marketing and print shop create the document to maximize the presentation. If you elect to have a selling memorandum professionally created, costs range from $500 to $3,000, depending on the number of pages and complexity.
Due Diligence and Closing Costs
Once all parties agree to final terms, the lawyers go to work.
Legal Fees. The buyer will almost certainly have an attorney that will participate in due diligence and draft the buy-sell agreement. You will want to have your own attorney involved as well, to make sure all contracts are thoughtfully reviewed, and the transfer of ownership goes off without a hitch. Legal fees vary, and lawyers may charge a fixed fee or by the hour. All in, expect sellers' legal fees around $2,500 to $5,000, though larger deals require more legal work. It's safe to assume legal fees around 1-2% of sale value.
Closing Costs and Expenses. As the sale proceeds and the lawyers finalize the details, there will be several transactional expenses. This includes your portion of unpaid taxes (business and property taxes), escrow fees (unless managed by your attorney), and filing fees to the appropriate state agency(ies) for the business transfer.
Final Tally
Because expenses tend to rise as deal values do, it's difficult to pin down a single numerical cost to sell a business. But, using the Q1 2023 median business sales price of $350,000 for sold businesses reported on BizBuySell, we can expect the following ballpark costs:
Brokers Commission- $35,000 (10% commission rate)
Pre-Sale Improvements - $8,000
Legal Fees - $5,000
Closing Costs - $5,000
Total Cost - $53,000
Total expenses for this hypothetical $350,000 sale are around 15% of the transaction, which is a reasonable cost to sell a business. Obviously, business owners have a lot of control over how much they choose to spend preparing and selling their business.
Business brokers are instrumental in marketing the business to the right buyers, and getting deals done at the best possible price. Still, some business owners will first try to sell on their own to save on commissions. Owners of some smaller businesses may be able to manage the sale without a broker. If yours is a small business earning less than $100k to $200k annually, and you think you're equipped to sell on your own, see our article on how to sell without a broker.
Accounting fees and closing costs are generally unavoidable – you must pay your taxes and filing fees. And you don't want to skip hiring a good lawyer, because there is a mountain of legal paperwork and legal pitfalls that can come back to haunt you.
If you're getting ready to exit your business, see our valuation and sales tools to get a benchmark valuation, find local brokers, or start your business for sale listing. If you're still in the information gathering stage, be sure to create a free BizBuySell account and read up on the process in our Seller Learning Center.