How much does it cost to sell a company? Expenses to consider before you start

Selling a company involves preparation costs, advisor fees, legal and tax advice, and expenses associated with completing the transaction. The total depends on the work required, the length of the process and the structure of the sale. Some costs may still be payable if the transaction does not go ahead, while taxes arising from the sale need to be calculated separately.

Business owners often start asking about costs when they begin seriously considering a sale. They want to understand whether to launch a search for buyers, how to respond to an approach and what resources they will need to commit before achieving a result.

Understanding the cost therefore means knowing both how it will affect the net proceeds and how much will need to be paid along the way.

The company’s starting position affects the work required

A company with up-to-date financial information, readily available contracts and financial performance that can be clearly explained can begin preparing for a sale using information that is already organised.

In other cases, issues that were not a priority in day-to-day management need to be clarified before approaching buyers. This may involve analysing the profitability of different business activities, reviewing dealings with companies connected to the owner’s family or deciding whether a property will be included in the sale.

This work takes time and may require input from several professionals.

Two SMEs with the same revenue can therefore face different costs. Size matters, but so does the amount of work needed to help an outside party understand and assess the company.

Preparation can be commissioned as a separate engagement. This allows the owner to gain a clearer understanding of the company’s value and the conditions for a potential sale before committing to a search for buyers.

The advisor’s fee is only part of the overall cost

The advisor may handle the valuation, preparation of marketing materials, search for buyers and management of the sale process through to completion.

Fees may include an initial payment, ongoing payments during the engagement and a success fee linked to an agreed outcome. Arrangements vary and do not necessarily include all three components.

To understand the financial commitment, it is important to clarify:

• which activities are covered by the fee;
• how the length of the engagement affects the cost;
• how the success fee is calculated and whether a minimum applies;
• whether fees already paid are credited against the final fee or charged in addition.

A percentage alone is not enough to compare proposals. The value to which it applies must also be defined, because the value of the operating business can differ from the price of the shares.

An advisor working solely on a success fee does not mean that the entire sale process is free of costs before completion. Lawyers, accountants and other professionals may have separate payment terms.

When other expenses arise

Legal and tax advice may be needed before meeting buyers, particularly when deciding what to sell and how to structure the transaction.

Later, this work covers the agreements, payment terms, warranties and tax implications of the sale. Selling the entire company with payment in full at completion involves different requirements from a transaction in which the seller retains a stake or part of the price depends on future performance.

The buyer’s due diligence also requires time and work from the company and its advisors. Documents need to be collected, figures explained and follow-up questions answered. Incomplete or inconsistent information may lead to further analysis.

Any notarial fees and other costs of formally completing the transaction that fall to the seller must also be included.

Taxes arising from the sale remain separate. The tax advisor’s fee pays for their professional work. The taxes themselves depend on the seller’s circumstances and the structure of the transaction.

The budget should follow the stages of the sale

Consider a business owner who starts with a valuation and the preparation of marketing materials, then commissions a search for buyers at a later stage.

The initial budget covers preparation and any additional analysis required. Once the search begins, the fees for managing the engagement are added. When substantive negotiations start, the scope of legal and tax support also becomes clearer.

Estimating the cost of the whole process means adding together preparation costs, ongoing advisory fees, other professional fees, the success fee and completion expenses. Any agreed fee credits should then be deducted, taking care not to count activities already covered by another fee twice.

The amounts should come from the professionals’ proposals, checking whether VAT, professional levies and reimbursable expenses are included.

The budget also needs to assume a timeframe. Where monthly fees apply, a longer process increases the cost. Any additional work should be identified and priced when the need arises.

This makes it possible to distinguish between costs that are already defined and those that still depend on how the transaction develops.

How much needs to be paid before the sale proceeds arrive?

The total cost and the cash needed during the sale process are two different considerations.

Preparation costs, ongoing advisory fees and some professional fees may be payable before completion. If negotiations stop, the engagement terms will determine which fees remain due for work performed, together with any minimum commitments.

Even a completed sale may involve payments spread over time. Professional fees do not automatically fall due on the same dates as the buyer’s instalments.

Conclusion

The cost of selling a company includes preparing the business, obtaining support during negotiations and paying the fees and expenses needed to complete the transaction. Taxes arising from the sale require a separate estimate and also affect how much the seller ultimately keeps.

Before starting, the owner therefore needs to assess the expected total cost, the amounts payable before receiving the proceeds and the costs that will remain even if the sale does not go ahead. A budget built around these elements provides a sounder basis for deciding whether to begin the process.

Frequently asked questions

Is there a fixed percentage for the cost of selling a company?

There is no percentage that applies to every transaction. Part of the advisor’s fee may be calculated as a percentage, but the overall cost includes other activities and depends on the terms agreed with each professional.

Will my costs be lower if I already have a buyer?

There may be less work involved in finding a buyer, but the offer still needs to be assessed, terms negotiated, due diligence supported and agreements prepared. Having an interested party does not eliminate the work required to complete the sale.

Do I still have to pay if the sale does not go ahead?

Fees for work already performed and other amounts specified in the engagement agreements may remain payable. The success fee depends on the agreed conditions for earning it.

Does the advisor’s fee include legal and accounting fees?

Not automatically. You need to check which services are included. An advisor coordinating the other professionals does not mean that their fees are covered by the advisor’s own fee.