Today's #smb thread is about expenses: Aspiring buyers of small businesses have search costs to consider beyond just the purchase price. This thread will provide an overview of many of the costs associated with the acquisitions process. I'll dig into the specifics of each cost type over the next few days.

Sourcing: Building a strong pipeline of potential deals is an essential component of every search process. It is also a place where costs can vary substantially, from both a financial and time perspective. Depending on your sourcing strategy, costs can range from $0 to a few thousand dollars per month.

Cheaper sourcing options include online marketplaces and broker websites, while more expensive options include buying data for off-market research, hiring buy-side brokers, and managing a team of VAs to conduct outreach on your behalf

Legal: 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: 1) engage a lawyer who is familiar with small business M&A – inexperienced lawyers can kill deals; 2) budget for at least $30,000 of legal costs for a self-funded search.

Due diligence: it's important to take the due diligence deep dive into your acquisition seriously. Different types of due diligence each carry their own costs, in order to achieve a thorough exploration of all factors related to the business.

Examples of due diligence costs include accounting costs, tax, quality of earnings, and consulting engagements with experts,

Diligence 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.

Post-close: Post-close expenses may involve hiring consultants with specialized knowledge in various business aspects. They can offer strategies for optimizing operations, overcoming challenges, and enhancing profits, which 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, which helps reduce the hit to your personal finances.

Living expenses: When acquiring a business, the cost of living is often an overlooked but significant expense. If you’re dedicating yourself to the search full-time, it’s important to consider the financial implications.

For searchers without savings or financial support from a spouse, pursuing a strategy that allows you to continue making money while searching is important, whether that’s searching part-time, or drawing living expenses from investors.