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Cost of Selling a Business
It’s impossible to put a figure on the cost of selling a business. The amount will depend on the type and size of your business, the experts you enlist to help and a wide range of other factors. Although the figures differ with each business, knowing where the fees come from can help you plan your budget and calculate your final profit.
Preparing Your Business for Sale
Just as you wouldn’t sell a house with a hole in the wall, you wouldn’t sell a business without taking the time to present it properly. The cost of presenting your business depends on the type of business and its current weaknesses. In many cases, money spent to spruce up the premises or upgrade a system is returned during the sale.
There are some cases when you may be better off not making upgrades as some buyers prefer a business they can put their own stamp on or swallow up in a larger, established business. If the cost of upgrading is unlikely to be recovered in the sale, it’s better to look for a buyer like this.
A business broker is the first expert you should consider bringing on to your team. A broker generally receives a commission of 5-10% of the sale price. They help you produce your information memorandum, value your business, find buyers and negotiate the sale. Between the time you save, and the price a broker can achieve, engaging a broker can bring a large return on investment.
Besides a broker, you will most likely need the expertise of a lawyer and an accountant. An accountant can help prepare the financial paperwork needed for due diligence. Independent legal advice should always be sought to ensure the contract of sale protects you and covers all eventualities. Again, the price of these services depends on the size and complexity of your business, but expect higher legal fees if leases are involved.
In all cases, speak to your preferred experts early in the process to ensure they can provide you with the assistance required. Ask for a quote at the time so there are no surprises after your sale has gone through.
Marketing is perhaps the most crucial part of selling your business. After all, if no one knows it’s for sale, no one will make an offer. The cost varies based on where and how you market your business. If you are working with a broker, marketing costs will be separate and can be discussed prior to you agreeing to work with them.
One essential part of your marketing budget will be your primary marketing document, which is an information memorandum. This document summarises your business, condensing the essential information for a prospective buyer into one easy-to-read package. You can do it yourself, but unless you’re experienced, an expert will produce a more polished product in a shorter amount of time.
Other marketing costs include advertising on websites and other publications. The price of advertising is available on the websites. As they regularly place multiple ads, brokers may receive discounts that they can pass on to you.
There are other costs associated with selling your business that must be considered. Although there is no capital gains tax in New Zealand, you may have tax obligations such as GST and income tax that should be discussed with your accountant.
You will also be responsible for any outstanding accounts at the time of settlement. In some businesses, there may be worker’s entitlement to be taken into consideration as well. In a business where premises are being transferred, there may be lease transfer fees that you need to pay.
Although estimating the exact price is difficult, understanding these categories allows you to research and ask educated questions of your experts so you’re aware of the cost of selling your business. Keep in mind the return that these investments will bring you and get ready to reap the rewards of your hard work.