The Hidden Costs of Buying and Selling a Business

The Hidden Costs of Selling a Business: What Sellers Need to Know

Selling a business isn’t just about finding a buyer and closing a deal. There are several hidden costs that sellers need to be aware of to avoid surprises along the way. From taxes to broker fees, these expenses can add up quickly and impact your final payout. In this post, we’ll break down the unexpected costs of selling a business and how to plan for them. Whether you’re just getting started or already navigating the process, understanding the hidden costs of buying and selling a business will help you prepare better.

What are the hidden costs of buying and selling a business?

When buying and selling a business, many owners focus on the sale price but overlook the expenses that come with the process. These costs can include taxes, broker commissions, legal fees, and other transaction-related expenses that reduce the amount you actually take home. Understanding these costs upfront can help you prepare and maximize your net profit from the sale.

Common Expenses When Selling a Business

1. Taxes on the Sale

One of the biggest hidden costs of selling a business is taxes. Depending on how your business is structured and how the sale is handled, you could face:

• Capital gains tax – If you sell your business for more than you originally invested, you may owe capital gains tax on the profit.
• Ordinary income tax – Some portions of the sale, such as earn-outs or consulting agreements, may be taxed as regular income.
• State and local taxes – Additional taxes may apply depending on where your business is located.

Tip: Work with a tax professional to structure your sale in a tax-efficient way and avoid unnecessary liabilities.

2. Broker Commissions

If you use a business broker to find a buyer, they typically take a percentage of the sale price as a commission. This fee can range from 5% to 12% of the total sale amount, depending on the size of the business and the broker’s terms.

Example: If you sell your business for $500,000 and your broker charges a 10% commission, you’ll owe $50,000 in fees.

3. Legal and Professional Fees

Selling a business involves legal paperwork, contracts, and negotiations, which often require the expertise of professionals such as:

• Business attorneys – To draft and review contracts, handle negotiations, and ensure compliance.
• Accountants – To help with financial due diligence and tax implications.
• Valuation experts – To assess the true market value of your business before listing it for sale.

These professionals provide valuable services, but their fees can add up, often costing thousands of dollars depending on the complexity of the transaction.

4. Due Diligence and Financial Audits

Buyers will want to conduct due diligence to verify your business’s financial health. This process may require you to provide:

• Financial statements and tax returns
• Legal contracts and agreements
• Operational records
• Customer and supplier contracts

If your records aren’t already in order, you may need to hire an accountant to clean up your books, which can be an additional expense.

5. Transition and Consulting Costs

In some cases, buyers may request that you stay on for a transition period to help with the handover. This could mean working for the new owner under a consulting agreement, which may delay when you fully step away from the business.

Consideration: Some agreements include performance-based earn-outs, meaning part of your payment is tied to the business hitting revenue targets after the sale.

How to Minimize Costs When Selling Your Business

To avoid losing more money than necessary, consider these strategies:

• Plan ahead for taxes – Work with a tax advisor to structure your sale in the most tax-efficient way.
• Negotiate broker fees – Some brokers may be willing to lower their commission, especially for larger transactions.
• Get your financials in order – Keeping clean records can reduce the time and costs associated with due diligence.
• Use online platforms – SMB.co helps sellers connect with buyers directly, reducing reliance on brokers and their commissions.

Key takeaways

Selling a business comes with more costs than most owners expect, but being prepared can help you maximize your final payout. Understanding these expenses: taxes, broker fees, legal costs, and more, will ensure you walk away with as much value as possible from your sale. Whether you are buying and selling a business or considering a future sale, knowing these hidden costs will help you plan and make smarter decisions. If you’re thinking about selling, SMB.co provides tools and resources to make the process smoother.

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