I had a conversation yesterday with a seller about the fees associated with buying a business.  It’s the same conversation I have over and over with both buyers and sellers. Now I know that it’s an over-generalization, but I think SBO’s are tight with their money.  Some say conservative, but wow have I seen some very inconsistent money management traits where business owners will fight to save a penny and lose a dollar. I understand that we as business owners have a real appreciation for what it takes to earn money and then spending it on professionals is emotionally challenging.  In all honesty it is our constant fear of running short of cash that separates the successful business owners from those who don’t make it.  I am all for conservative, but there is a time and place where money is better spent and has a greater return on investment.

Don’t get me wrong, I have bought a boat and taken trips where in reflection I wonder… if that is the best use of my after tax dollar, but they were not a once in a lifetime deal.  When you buy or sell a company it can be the largest transaction you will ever make so why cut on the costs?

Let me explain it like this…you either pay for qualified professionals to assist you in the legal, transactional and tax “duck and dodge” game or you have regrets.  Honestly, it is that simple.  It is rarely, and listen when I say very rarely, that a business transaction has closed without professional help and one or both parties of the transaction have no regrets, aren’t exposed legally or said “I wish I had known that”.  After all of that fear factor add in that they likely paid more in taxes than they needed to.

I’m a business owner who also sold his business so I know there are a few assumptions in the above statement.  One, and this is a big one, is the definition of a qualified professional.  I’m going to stay out of that conversation right now and assume that you have qualified your adviser team.  (I will discuss the adviser team and qualified in another write up).  Now assuming you have a qualified adviser, why don’t you listen to them?  Seriously, why don’t you?   What baffles me is when an owner wants all my professional experience and service, qualified my references and then argues over my proposal. You pay almost 9% sales tax in California on every item you buy or sell right now and you still are buying things that you don’t need.  You wouldn’t go find the lowest cost surgeon who is scheduled to do open heart surgery on your child, so why are you so worried about the closing cost?  I agree, advisers are expensive, but we as SBO’s are not the easiest to work with.   We are independent, emotional, cheap, controlling, nervous, optimistic,etc. but we are not the ideal business sector to work with.

I have personally seen where the professionals have brought a better deal, higher after tax cash payment, a more secured loan and a qualified buyer to the table only to have the seller argue that the transactional fees are to high.  PLEASE listen to me, it is not the fees you should worry about, but rather whether or not you are getting the maximum after tax dollar for your business.   Personally, after showing the business owners that the amount of taxes saved by the creative structure of the sale is in excess of the closing fees, the owner still pulled out of the deal.  They thought they could do it themselves and save the fees.  They were wrong, the business did not sell and now it has less value since the owner has emotionally checked out.

The only advice I can give you is that only about 15% of all business transactions close and if you have to pay a little more in fees to be among the 15%, then don’t cut costs here.  It is a good investment to get smart advice and in the long run, you will see that they were right.   The combined Federal and State taxes will be somewhere around 40% for the corporation and individual so hire someone qualified to help you.   I hate to say it, but as a fellow business owner who had to pay the fees to make the deal happen and it went against my ownership grain, three years later everything they said has come true.  Ugh!   Don’t have regrets like I do, hire help!

This entry was posted on Tuesday, March 31st, 2009 at 2:04 pm and is filed under Sell Your Business, Emotional Selling. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.