How Much Does It Cost to Sell a Business and Who Gets Paid What?
Business-sale expenses vary based on transaction size, complexity, industry, and deal structure. While no two transactions are identical, many involve similar categories of service providers and costs.
Two Main Categories of Costs
Many sale-related expenses fall into two broad categories:
Transaction fees paid to advisors and service providers
Deal economics that affect net proceeds, such as escrows, working-capital adjustments, earnouts, and debt payoffs
This guide focuses on transaction-related fees.
1. M&A Advisors, Investment Bankers, and Business Brokers
These professionals are often among the largest fee categories in a transaction.
Compensation structures may include:
Success fees paid at closing
Monthly retainers
Tiered fee arrangements
Their responsibilities often include buyer outreach, process management, negotiations, and transaction coordination.
2. Transaction Attorneys
Legal fees are commonly billed hourly.
Attorneys may assist with:
Letters of intent (LOIs)
Purchase agreements
Disclosure schedules
Employment agreements
Escrow provisions
Closing documentation
Legal expenses often vary based on deal complexity and negotiation activity.
3. CPAs and Tax Professionals
Accounting and tax professionals may become involved before, during, and after a transaction.
Common areas of support include:
Tax-planning discussions
Transaction modeling
Entity-structure review
Purchase-price allocation considerations
Post-closing tax matters
4. Quality of Earnings (QoE) Providers
A QoE review evaluates the sustainability and presentation of earnings.
Areas commonly reviewed include:
Revenue trends
EBITDA adjustments
Working capital
Financial reporting consistency
Findings may affect valuation discussions and buyer expectations.
5. Valuation Providers
Some owners obtain independent valuation analyses before beginning a sale process.
Valuation work may be used for planning, negotiations, shareholder matters, or tax-related discussions.
6. Lenders
If financing is involved, lender fees may affect transaction timing and economics.
These costs are often associated with buyer financing but may influence overall deal structure.
7. Escrow and Paying Agents
Escrow providers help coordinate the transfer and distribution of funds.
Their responsibilities may include:
Processing payments
Managing holdbacks
Coordinating debt payoffs
Distributing proceeds
8. Representation and Warranty Insurance
Representation and warranty insurance is sometimes used to allocate certain transaction risks.
Responsibility for premiums varies and is typically negotiated between the parties.
When Are Costs Paid?
Before Closing
Retainers
Early legal work
Tax-planning discussions
Valuation and QoE projects
At Closing
Success fees
Outstanding legal invoices
Escrow and transaction costs
After Closing
Tax filings
Purchase-price adjustments
Earnout administration, if applicable
Where Compound Wealth Fits
Owners considering a future business sale often seek educational resources related to tax-planning topics and liquidity events. Compound Wealth publishes informational materials that may help owners prepare questions and organize discussions with their CPA, attorney, and other professional advisors before and after a transaction.
Frequently Asked Questions
What is usually the largest transaction expense?
For many transactions, advisor or broker success fees represent one of the largest third-party costs.
Do smaller businesses pay a higher percentage in fees?
In some cases, yes. Minimum fees and fixed costs may represent a larger percentage of transaction value in smaller deals.
What is a quality of earnings review?
A quality of earnings review analyzes financial information to help buyers and sellers better understand reported earnings and adjustments.
Are legal fees paid only at closing?
Not necessarily. Legal expenses often begin during transaction preparation and may continue through closing and post-closing matters.
Should tax considerations be reviewed before a sale?
Many owners discuss tax considerations before negotiating final transaction terms because certain planning opportunities may be easier to evaluate earlier in the process.
About Compound Wealth
Long-term financial planning often involves balancing tax considerations, investment decisions, business interests, and personal financial goals. Compound Wealth provides an integrated planning approach that brings these disciplines together to provide a coordinated framework for evaluating financial decisions as financial circumstances evolve over time.
