Attorney Fees for Selling a Business: Costs & Considerations
Selling your business is one of the most important transactions in your life as an entrepreneur, so you'll want to take home as much as possible.
However, key costs, such as attorney fees for selling a business, can significantly reduce your overall monetary benefit from the sale.
But how can you minimize this cost? What does it depend on in the first place? How do you find the right business attorney?
Today's guide explores the answers to these pertinent questions and more.
As experts in streamlining the business selling process, we help you find the best M&A attorney in your industry. We'll connect you with the top ones, help you choose, and even negotiate better favorable fees and terms on your behalf.
Reach out to us at Exitwise to find the best M&A attorney and other experts to help you maximize your exit.
Why Hire an Attorney to Sell a Business
Hiring an attorney to sell your business helps ensure the sale process runs smoothly, fairly, legally, and in your best interests.
Here are key reasons to hire and work with a business lawyer when selling your business:
Ensuring Legal Compliance: A business attorney helps ensure you don't miss any legal requirements or considerations that may tank the deal. They have extensive knowledge of federal and state business sale laws and regulations and can help with compliance.
Negotiation Support: Your lawyer can offer expert advice and help with negotiations to achieve a better sale and deal structure, both financially and legally.
Documentation Expertise: You’ll need several business sale documents, including legal ones such as M&A NDA and sale agreement. Your attorney can draft and review such documents to ensure they sufficiently protect your personal and business interests.
Due Diligence Assistance: M&A attorneys are helpful when it comes to reverse due diligence to uncover potential legal issues that may affect the sale. They also help you review and answer the buyer's due diligence. They ensure you provide relevant information while preserving sensitive details.
Mitigating Risks and Liabilities: M&A risks such as litigation issues can reduce the value of your business or discourage the buyer altogether. An attorney helps you identify potential legal problems early to reduce your liability.
Ensuring Proper Transfer of Ownership: Your lawyer can help transfer your business, including its assets and assumed liabilities, smoothly and affordably to the new owner.
Peace of Mind: With the right lawyer, you can be relieved of the stress of the legal side of the entire sale process. You are better able to weather any legal liabilities and uncertainty.
Working with a business sale attorney frees up your time for other activities to maximize your business's value before the sale.
Factors Affecting Attorney Fees for Selling a Business
Business attorney fees differ significantly based on factors such as:
Deal Structure and Size: You can use an asset sale or stock sale, depending on the nature of your business. Each structure has its own legal nature and complexity. More legal complexity can mean higher business lawyer fees.
Business Complexity: If your business is large and complex, with multiple departments or locations, diverse assets, and intense operations, selling it would require more legal work, hence more fees.
Attorney's Experience and Reputation: A more experienced attorney typically charges more than someone newer to the scene. The same goes for reputation because being a renowned lawyer means a higher demand for services, which pushes the cost upwards.
Location: It can be cheaper to hire a business lawyer in one location than in another, mainly because of differences in the cost of living and doing business in various regions.
Due Diligence Process: An intensive due diligence process can increase the activity time and the need for more legal staff. Your lawyer will have to charge higher fees to account for the increased time and personnel.
Attorney Fee Structure: The legal fees for a business sale can vary depending on the lawyer's fee structure. For example, billable hours can lead to a high overall fee if the sale is labor and time-intensive.
Detailed Breakdown of Attorney Fees for Selling a Business
Speaking of fee structures, here's a breakdown of the types of rate systems used by business lawyers:
Billable Hours or Hourly Rates: According to the American Bar Association, most lawyers charge on an hourly basis for their services. UpCounsel places the average legal fees for a small business at $150 per hour to over $1,000 per hour, depending on the lawyer's seniority and experience.
Flat Fees: A lawyer may charge a flat rate to help you sell your business from end to end. Alternatively, they may charge you a smaller flat fee for specific services in the deal, such as reviewing and drafting business sale documents.
Retainer: Since it takes a while to sell a business, your lawyer might charge you a retainer fee every month to stay on board and help with legal needs when they arise. The fee may also be an upfront payment before the work begins and usually covers part of the overall service cost.
Transaction Fees: Lawyer fees for selling a business can also be in the form of a contingency or success fee that is a percentage of the sale price. The percentage-based model is usually ideal for larger deals with a more complicated M&A process.
How to Minimize Attorney Fees When Selling a Business
Regardless of your lawyer's pricing structure, you'll want to minimize the fees to increase your take-home amount.
Let's check out some ways to do so:
Get quotes from different lawyers to compare them and choose the most favorable.
Negotiate a flat rate fee as it is more predictable and easier to budget accurately.
Prepare the necessary business and legal documents in advance to minimize the time your lawyer spends finding and reviewing information.
Ask to work with a junior lawyer from the same firm for simpler tasks of the sale, as they may have lower hourly rates.
Define the scope of work and services clearly to avoid unnecessary extra work that may increase the fees.
Ensure timely and efficient communication with your attorney to reduce unwarranted delays or back-and-forth engagements that may increase costs.
Work with a reputed company to help you with hiring and negotiating terms of engagement and fees.
How to Find the Right Attorney to Sell My Business
Finding the right attorney to help with a business sale can be difficult.
You have to consider a whole lot of factors, such as their reputation, experience, and specialization. You must also consider their success rate, availability, and pricing transparency.
Additionally, you have to review a huge list of potential lawyers in your location. Making a shortlist and the final choice is challenging.
You can overcome these challenges when you work with our team at Exitwise. We are dedicated to helping you recruit and work with the best M&A professionals who can assist with the sale.
Our expert connection and management service is turnkey in different ways:
We recommend only the best M&A professionals specializing in your industry.
We help you choose the best experts depending on your needs and preferences.
We help you recruit and manage the entire M&A team, which includes business attorneys, financial accountants, and investment bankers.
We can negotiate better fees and terms of engagement with each expert on your behalf.
We have a proven track record that our approach works based on these and more success stories.
Once you are ready, we'll help you hire and work with the best M&A lawyer specific to your industry.
Chat with our team at Exitwise today to get the exit of your dreams underway.
Frequently Asked Questions (FAQs)
Here are quick answers to questions you may have on the topic:
Are Attorney Fees for Selling a Business Tax-Deductible?
Generally, legal fees for selling a business are tax-deductible when positioned as a business-related expense. The nature and timing of the lawyer's services may matter when qualifying the fees as an expense.
For example, if the fees relate to the deal itself, such as negotiating terms or handling the sales agreement, they can be seen as a legitimate and deductible cost of selling your business.
Can an Attorney Represent Both Buyer And Seller in a Business Sale?
Generally and ideally, the same attorney shouldn't represent both the seller and buyer in a business sale.
There will be a conflict of interest. The sell-side attorney looks out for the best interests of the seller, while the buy-side attorney protects the buyer's interests. The interests of either side are usually opposed during negotiations.
Furthermore, confidentiality issues often arise when the same lawyer serves both parties.
What Legal Documents Are Involved in the Sale of a Business that Require Attorney Assistance?
You will need an attorney's help with the following documents during a business sale:
M&A non-disclosure agreement
Employee, customer, and vendor contracts or agreements
Sales and purchase agreement or merger agreement
How Much Should I Budget for Attorney Fees When Selling a Small Business?
Since there are so many dynamics involved in a business sale, it's hard to pinpoint a specific budget for attorney fees.
If you use an hourly rate, there's no telling how many billable hours there will be by the end. A flat fee or retainer option would be more predictable.
If you use a transaction fee system, you might pay 1% to 5% (general average) or more of the sale price. The higher percentage is mainly to account for the high costs of legal work compared to the smaller deal value.
Conclusion
Understanding the expected attorney fees for selling a business is crucial to your preparedness for a successful sale.
While it's difficult to estimate the cost independently, you can talk to different lawyers to obtain and compare quotes.
When you work with us at Exitwise, you don't have to worry about finding and negotiating with lawyers. We'll connect you with the best and help you recruit and work with them.
We also negotiate favorable fees and terms of engagement with your preferred attorneys to ensure a smoother collaboration and that you take home as much as possible from the sale.
Consult with us today to find your dream M&A attorney for a faster, legally abiding business sale.
