When selling your business, it is important that you keep in mind all costs that are associated with the sale when negotiating any purchase price of the business. This is to ensure that the balance of the proceeds you receive following the sale, reflects what you had anticipated during the negotiations with a purchaser and is not unexpectedly eroded by unanticipated costs.
Whilst most owners understand that they will be required to pay any agent their respective commission, and pay their solicitor for acting on their behalf, there are a number of other expenses associated with the sale of a business that are often overlooked. It is often the case that these expenses are only considered and pointed out to the owner of the business following a purchase price being negotiated and agreed between the parties.
The following are examples of expenses which are commonly overlooked or unanticipated by business owners:
- Leasing costs – if the business sale involves a premises, there will usually be costs associated with assigning the Lease to the purchaser, or the grant of an entirely new Lease to the purchaser. It is invariably a condition of the Lease that the owner of the business meet the landlord’s legal costs and any incidental costs associated with the assignment. These costs can vary from anywhere between $500.00 and $5,000.00.
- Finance – it is standard practice that any plant and equipment sold with a business are sold free of encumbrance. In order to release any encumbrances, it is often the case that the finance owing on any plant and equipment must be paid out in full prior to completion.
- Supplier accounts – it is not uncommon for businesses to have ongoing supplier accounts granting credit to the business. A purchaser will require that these accounts be paid out in full and any Personal Property Security Interests released on completion.
- Franchise Agreements – if your business involves a Franchise Agreement, the Business will invariably require an assignment of the Franchise Agreement to the purchaser or the grant of a new Franchise Agreement to the purchaser. The business owner will generally be responsible for meeting the costs associated with this process and, in addition to these legal costs, some Franchise Agreements often have significant transfer fees (which may be anywhere between $5,000.00 and $50,000.00) required upon transfer of the Franchise Agreement to the purchaser.
- Statutory Licences and Approvals – if the sale of your business involves the transfer of a Licence or Statutory Approval, there will usually be transfer costs associated with processing these applications to transfer them to the purchaser.
It is important that you obtain advice and consider all possible expenses associated with the sale of your business before you decide on a purchase price with any purchaser to enable you to factor in these expenses to your ‘bottom line’ and avoid any unexpected costs associated with the sale of your business.\