Costs and Fees Associated with a Business Sale Closing

Business buyers and sellers are often wondering what additional costs they will incur during the course of a business sale transaction and at closing. While each business sale is completely different, and most closing costs will vary based on different factors like purchase price or location, we wanted to at least offer a list of the most common items that buyers and sellers need to be prepared for. By no means is this a complete list of settlement charges or possible fees in a transaction, but it will at least give you a good idea of what to expect or ask about. For exactly what your specific costs and fees will be at closing, contact your closing attorney and/or lender (for buyers using SBA financing) for an estimate based on your unique transaction. 

Note: the most common terms for the itemized list of credits and debits issued by the closing attorney at closing is called a settlement statement or a closing statement. Those two terms are used interchangeably. 

Common costs and expenses for a seller:

  • Closing Agent/Attorney’s Fee is normally split 50/50 with the buyer, but is negotiable…typically it can be $1,000-$2,000 per side, but this highly depends on the closing attorney and what they charge.
  • Searches (Liens, municipalities, sales tax, etc.) These can be split 50/50 depending on what they are for. Any searches related to the purchase of commercial property would normally be paid for by the buyer.
  • Commission paid to the business broker(s). Other than debt payoffs, this will typically be the largest cost for the seller, and it will come out of the proceeds of the sale. The amount is pre-determined in the Listing Agreement, and if there is a business broker on the buyer’s side, then the listing broker will normally split the commission with them. 
  • Administrative Fees charged by the closing attorney such as postage or wire transfer fees etc. These are usually very nominal. 
  • Pay-offs of debts at closing. This would be any liens, or money owed on vehicles or equipment. The closing attorney usually handles the payments of these items, so the liens can be removed correctly at closing. (The buyer will often take over leases of large pieces of equipment, but it will vary by transaction.) Work with the closing attorney’s office closely on this topic.
  • Professional Fees if you need assistance from your CPA to prepare financials for example, or if you choose to hire an attorney who specializes in business sales to assist you in the sale. These costs will vary based on the professionals you select and their hourly rate. 

Common costs and expenses for a buyer:

  • Closing Agent/Attorney’s Fee is normally split 50/50 with the seller, but is negotiable…typically it can be $1,000-$2,000 per side, but this highly depends on the closing attorney and what they charge.
  • Searches (Liens, municipalities, sales tax etc.) These can be split 50/50 depending on what they are for. Any searches related to the purchase of commercial property would normally be paid for by the buyer.
  • Administrative Fees charged by the closing attorney such as postage or wire transfer fees etc. These are usually very nominal.
  • Anything Financing-Related will be a cost to the buyer. Whether it’s in connection to an SBA loan or a seller finance situation, the buyer normally covers the costs associated with borrowing. Appraisal (commercial property appraisals are expensive, usually several thousand dollars), government recording fees, taxes and doc stamps, attorney’s creation of a seller note, etc. SBA lending fees are normally rolled into the loan, and not usually paid at closing. However, the bank might have other charges that they will put on the closing statement, so check with your lender as to what exactly these fees and charges will be. 
  • Due Diligence is the buyer’s responsibility financially. The buyer pays for equipment inspections, CPA fees if using an accountant to review financials, commercial property inspections, including environmental reviews (if purchasing the real estate), and title insurance (if purchasing the real estate). These costs will vary, but can range from $1,000 to several thousand dollars for each item above, depending on the size of the business and/or property. 
  • Business Set-Up Costs won’t be on the closing statement, but they would include the creation of the buyer’s new business entity (if not already set up), fictious name transfer or registration, local tax certificate, re-employment tax registration, sales and use tax set up, necessary licenses and/or permits, insurance, business bank account, workers comp, payroll company, bookkeeping software, utilities, security deposit on the lease (if there is leased space), operational software such as point of sale and credit card processing, etc. These would be all the things a buyer needs to get in place to legally and operationally run the business. The best resource for this list would be the seller…they know exactly what the buyer needs to operate the business. 
  • Working Capital you won’t see on the settlement statement either, unless the SBA lender is loaning it to you as part of your loan package, but buyers need to have enough cash on hand at closing to cover expenses for the first several months. Remember that accounts receivable isn’t typically included in an asset sale, and although you should be making money on day one, it will take a few months of income to build the business’ bank account up to where it should be. 
  • Professional Fees if you need assistance from your CPA to review financials during due diligence for example, or if you choose to hire an attorney who specializes in business sales to assist you in the sale. These costs will vary based on the professionals you select and their hourly rate. 

Other debits/credits you could see on the settlement/closing statement:

  • Prorations are based on the closing date. There are some items that might have been pre-paid by the seller and they will need to get credit for that, such as property tax, association fees, tangible tax, or any other pre-paid fees that the seller has paid and the buyer will need to pay for.
  • Accrued PTO for Employees (if applicable)
  • Work in Progress (if applicable)
  • Previously Sold Gift Certificates/Cards (if applicable)
  • Inventory Amount Adjustment (if applicable)

Optional Expenses:

These items the closing attorney could prepare for the parties, based on the details of their specific transaction. Who pays for these costs is negotiable, but they are normally split 50/50, unless the document is beneficial to buyer or seller specifically, like a seller note for example. The buyer would normally pay for that, because they are benefiting from borrowing the money from the seller to complete the transaction. 

  • Employment Contract if the seller will be staying on as an employee after the sale. This is something that buyer and seller can write up and sign on their own, but if they want it done professionally, the closing attorney will normally do it for a fee. Usually it’s a few hundred dollars, depending on the attorney’s hourly rate. 
  • License Qualification Agreement might be necessary if the buyer will be utilizing the seller’s professional license to qualify the business while the buyer obtains the proper license. The buyer typically pays a monthly fee to the seller for the use of their license until they are ready to qualify the business themselves. We typically see this with construction-related businesses. The closing attorney will usually charge a few hundred dollars to write this up. Again, check with your closing attorney to see what they would charge. 
  • Escrow Hold Back Agreement if there will be an amount held in escrow for a certain period of time. Again, consult with the closing attorney as to what the creation of this document costs. A few hundred dollars is typical. 
  • Non-Compete Agreement can be drawn up in more detail than in provided for in the Purchase Contract if the situation calls for it. Again, it’s another document that a closing attorney will be well-versed in and can assist with. 

Reminders:

Remember that each business sale transaction is completely unique and costs will vary greatly depending on the situation. It’s not as easy and straight forward as a home sale, for example, so it will be important to ask the closing attorney and/or SBA lender involved to give you an estimate of closing costs. This is not a full and complete list, as that would be nearly impossible to create. These are the most common items that we have seen throughout our years of brokering business sales. The exact amount of costs and fees won’t be officially provided until the settlement statement comes out (a week to a few days before closing), but they should be able to give you an idea of where the costs should be, just so you are prepared.