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How to Sell Your Business
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Article 4: What Costs Are Involved In Selling?
It costs money to make money. We know that’s true in many aspects of business. It also holds true when it comes time to put your small business up for sale.
Suppose you’re one of the many entrepreneurs who have decided to sell your profitable concern. How much is cashing out going to cost you?
“The first cost is the money spent for legal representation,” advises Rick Rickertsen, managing partner of Pine Creek Partners, a private equity firm based in Washington, D.C.
He suggests selecting an attorney who is skilled in the specific practice of mergers and acquisitions. Such representation typically costs around $10,000 for the smallest of businesses and can go up to $100,000 for larger ones. Beware trying to cut costs here. “I can’t tell you how many deals get killed or screwed up with lousy lawyering,” warns Rickertsen.
The second basic expense is that of representation by an investment banker. An investment banker is an intermediary which represents your company in the marketplace, finds buyers and conducts negotiations. Big corporations use large investment bankers such as Morgan Stanley. There are many small boutique investment bankers around.
“Be prepared to pay the price to get good representation,” says Rickertsen. “The actual amount will depend on transaction size but often runs from 3 percent to 5 percent of the sale value for a small company. Sometimes you can get it down to 1.5 percent to 2 percent if you are a good negotiator.”
Investment bankers also charge minimum fees which can go all over the map.
If your business is too small to interest an investment banker, you may use a business broker. These firms may charge a negotiable fee from 5 percent to 10 percent of the sale value for selling a smaller company.
A third expense involves the preparation of documentation that describes the current value of your business. A certified public accountant (CPA) may prepare a set of what are referred to as audited financials for a fee of around $40,000 for your small business.
Finally, you may opt to arrange for a professional evaluation of your business. A valuation may cost from $20,000 to $25,000 for a small business.
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