It’s Not the Price, It’s What You Get to Keep
What are the ESTIMATED closing costs you might expect to pay when you sell your landscaping business?
As you think about selling your business, it’s helpful to have a sense of what the “Net” will be after you’ve satisfied all obligations and paid taxes, fees, and other expenses. If you promise to read the disclaimer* below, I will outline some of the major categories:
- Taxes! There are many types and complexities of taxes you need to be aware of including Federal and State and possibly Municipal Sales Taxes, Capital Gain Taxes, Income Taxes, Deferred Taxes (Sec. 179), real estate taxes, etc. A savvy owner will get solid advice prior to selling the business to minimize the tax impact. A complete description of tax strategies available to minimize your taxes is beyond this blog but do spend time pre-planning steps you could take. It’s not too soon to start several years ahead of your planned exit date. By the way, that same time frame is a good one for assessing your company’s value and taking profit improvement steps to get your best sales price.
If you want to do some independent reading, check out the IRS links about Tax rates IRS Capital Gains tax link. That one is written for asset sales (which is the usual form a transaction will take). In an asset purchase sale, you will be paying a blend of ordinary income tax, capital gains tax, state taxes, possibly municipal taxes, etc. Some of the taxes you may have avoided due to strategies like accelerated depreciation or others may have to be recaptured if you sell before a certain date. The best person to estimate that for you would be your CPA who prepares your taxes. Even better, work with a tax attorney who deals with these types of transactions who can give you options to minimize your taxes. I try to avoid using a generic google search since there is so much bad/outdated information out there.
- Legal fees. Of course, this depends on what you want to have done. It’s important to choose an attorney who is familiar with private transactions for companies in your size category. Buyers usually start the documents, so you are spared that expense. The attorney you want is one who is familiar with how these deals are done. Deals can be killed by the wrong kind of attorney. They “protect their client’s interest” right out of a deal.
You should look for someone who will work on a flat fee and bill against a retainer. You can find a good one who may charge $400-$500 an hour and they will use their associates to maximize value for you. Fees should include some pre-deal prep (due diligence on corporate records, lien searches, etc.), negotiating the legal aspects of the purchase agreement and all the related docs (employment or consulting agreement, leases, etc.) You may find an attorney who can do the tax strategy and deal documentation as well. All depends on the complexity. It is possible to spend a lot of money if you are not careful. Price range may be $5,000 to $20,000 or higher, depending on the situation.
- Accounting fees. Ask your CPA. If you don’t have a bookkeeper inhouse, it will be you and they who are tied up pulling information for the CIM and potential buyers and working through due diligence. There is usually a mini “quality of earnings”* review for all deals. The buyer is the driver of how much diligence they need. Most of the landscaping companies we’ve worked with have had fees no more than $5,000-7,500 range, but again, this all depends on how clean your books and records are, how close you conform to GAAP, level of detail in your accounting, etc.
- Advisor fees. These fees will vary depending on the type of advisor you engage and the size of your transaction. Traditionally advisory firms charge success fees based on a scale that decreases as the size of the transaction increased. (google Lehman scale) Business brokers may do the same or may charge a flat fee of up to 10% of the purchase price (+/_) depending on the size and makeup of the transaction. You can expect to pay close to 10% of the purchase price for a transaction where the enterprise value is less than $1 million. For a larger transaction with customized marketing strategies and sales, there may be a scale beginning at 8-10% decreasing to 4% or less as the size of the purchase price increases. Typically, monthly fees are also charged during the listing period. You want to find the advisor with the best fit for your company.
- Other closing costs to anticipate:
- Fees related to transferring titles, lease assignments, escrow (although buyer usually pays), etc.
- Paying off debts
- Paying any other obligations as of the date of closing (accrued vacation, PTO, bonuses, phantom stock incentives, etc.)
If you’d like to discuss how to get started with the sale of your company or how to be prepared for the future when you are ready to transition out of the business, we’d be happy to have a confidential complimentary conversation with you about these or any other exit/sales/buying issues.
You can reach me via email: [email protected] or on my cell phone a: 224-688-8838.
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*DISCLAIMER: Business sales and purchases have risks. Buyers and Sellers should understand that Harvest the Green Partners, Inc. does not provide legal, accounting or tax advice and does not act as licensed attorneys, accountants or tax advisors. Buyers and Sellers should seek counsel from an attorney, Certified Public Accountant and any other parties necessary to make an informed decision regarding the transaction. Buyers should conduct their own due diligence. Harvest the Green Partners does not verify information and does not conduct due diligence on the business, the parties or the business’ records.