☀ Leading up to my conversation with ^Searchfunder member this afternoon, I'm sharing part 9 of my #smb #acquisitions for #beginners this morning. Today's post is about deal costs. You're under LOI. What can you and your wallet expect in this next phase of the process?
1) Legal costs: an #smb acquisition can be legally complex, with multiple steps that often require the help of an expert. Lawyers can help with LOIs, Due Diligence, and closing documents. Our key advice here (based on cost estimates) is to: a) engage a lawyer who is familiar with small business M&A – inexperienced lawyers can kill deals; and b) budget for at least $30,000 of legal costs for a self-funded search.
2) Due Diligence costs: include accounting costs, tax, quality of earnings, and consulting engagements with experts. You won't want to skimp on these because they are essential to uncovering potential challenges and making sure you properly price your acquisition. Costs can range from under $30,000 in cases with limited complexity or where the buyer has a skillset that allows them to perform some diligence functions on their own to over $100,000 in particularly complex cases.
3) Post-close: expenses may involve hiring consultants with specialized knowledge in various business aspects. They can be especially helpful if you’re new to the industry or lack specific expertise. The post-close phase ushers in additional expenses necessary for a seamless transition and efficient operation under new ownership. While they can be sizable, they will most likely be paid from the cash flow of your new, profitable acquisition.
4) Don't forget to budget for ongoing costs, including living expenses and costs for search tools to keep a full deal pipeline. The post-LOI process can take a couple of months. Don't run out of funding because you assumed you would close quickly.
Overall, understanding the cost variations and developing a well-informed search strategy is essential for searchers from all backgrounds.
If this was helpful, check out our interview this afternoon, 2:00 CT! Streaming live here on Searchfunder!
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