What it costs to sell your business, and what you actually keep at closing

Start at the headline price, then start subtracting

Short answer: on a Main Street deal, plan on losing somewhere between a quarter and half of the headline price before the money is yours and spendable. Broker commission, legal and accounting, debt payoff, a working capital true-up, an escrow holdback, a seller note you collect over years, and taxes. Price is not proceeds. The number you brag about at the bar and the number that hits your account are two different numbers, and nobody tells you that until you're 60 days into a deal and emotionally committed.

I've sold businesses I owned and I've sat on the buy side of purchase agreements. Here's what I learned the hard way: the allocation page and the holdback section moved more real money than the purchase price ever did. Owners negotiate the big number for six weeks and then skim the last twelve pages because they're tired. That's where the money is.

So let's eat this elephant one bite at a time. I'm going to run a hypothetical $1,000,000 sale all the way down to the wire. Your numbers will be different. The structure won't be.

Broker commission: the ranges and what you're buying

Business brokers on small deals commonly work off a 10% commission, with a stated minimum fee that bites hard on anything under about $500K. On larger deals you'll see a sliding scale, the old Lehman-style formula that steps the percentage down as the price goes up. Those are rules of thumb, not law. Everything is negotiable, especially the minimum and the tail period.

On our hypothetical million-dollar sale, that's $100,000. Is it worth it? Sometimes, honestly, yes. A good broker brings buyers you'd never find, keeps you from being the one who says the awkward number out loud, and keeps the deal moving while you still run the business. A bad one lists you on a marketplace, sends you unqualified tire-kickers who won't sign an NDA, and collects on a buyer you brought yourself.

Three things to read before you sign a listing agreement:

• Exclusivity and term. Twelve months is standard. Ask for an out at six if there's no activity.
• The tail. If you fire the broker and sell nine months later to someone on their contact list, they likely still get paid. Fine. Just make sure the list is a written list, not a vibe.
• Carve-outs. If your competitor across town or your general manager is the likely buyer, name them in the agreement at a reduced fee or zero. That conversation is free today and expensive later.

Legal, accounting, and the money you spend whether or not it closes

This is the category owners forget entirely. Your attorney doesn't work on contingency. Your CPA doesn't either.

You need a transaction attorney who has papered asset sales before, not your cousin who does real estate closings. You need your CPA involved before you agree to structure, not after. If the buyer is doing diligence, you may need help assembling three years of cleaned-up financials. Some sellers pay for a quality-of-earnings review or a formal valuation up front. Say the legal and accounting side runs $25,000 on our hypothetical deal. On a messier one with real estate, multiple entities, or a lease assignment fight with a landlord, it runs more.

Here's the part that stings: you pay most of that even if the deal dies. Deals die at 30%, 40%, who knows. The point is a meaningful share of signed letters of intent never close. Buyer financing falls through. Diligence turns up a problem. Buyer gets cold feet in month four. You still owe your attorney. Budget for a dead deal, and add 20% on top of your estimate. That's the oopsie fund, and I've never once seen a seller regret having it.

Debt payoff, liens, and the working capital true-up

Most small business sales are asset sales, and in an asset sale you're generally delivering the assets free and clear. Every secured lender gets paid at closing, off the top, before you see a dollar.

Make a list this week. Not from memory, but from a UCC lien search and your own loan statements. SBA loan, equipment financing, that truck you refinanced, the merchant cash advance you took during a slow winter, the equipment lease with a buyout you forgot about, unpaid sales tax, payroll tax liabilities. Sales tax and payroll tax in particular follow people around in ways other debts don't, and buyers' attorneys look for them specifically.

Say you're carrying $150,000 across a term loan and two equipment notes. That comes out of the $1,000,000 before anything else.

Then there's the working capital true-up, and this is the one that surprises people. Most purchase agreements say the business is delivered with a "normal" level of working capital: receivables and inventory in, payables out. If your receivables are low and your payables are high the month you close, you write a check back to the buyer. The target gets set from a trailing average, often twelve months. If you've got seasonality, and in Northern Colorado almost everybody does, the month you close matters. Closing right after your busy season, with receivables full, is a different outcome than closing in February with nothing in the pipeline. Call that a $20,000 swing in our example, and know it can go either direction if you plan for it.

The allocation page decides your tax bill

One page in the purchase agreement, usually near the back, splits the purchase price across asset categories. Equipment. Inventory. Goodwill. Non-compete. Consulting agreement. The IRS requires both buyer and seller to report that allocation on Form 8594, and the numbers have to match. Which means it's negotiated, and most sellers don't negotiate it.

Why it matters:

• Goodwill is generally capital gain to you. That's the friendly bucket.
• Equipment above its depreciated basis triggers depreciation recapture, taxed at ordinary income rates under the Section 1245 rules. You already took the deduction; the IRS takes it back.
• A non-compete or a consulting agreement is ordinary income to you, and a consulting agreement can drag self-employment tax with it.

Now here's the tension: the buyer wants dollars in equipment and the non-compete because those write off faster. You want dollars in goodwill. Those two positions are directly opposed, which means allocation is a real negotiation with real money in it, and it usually happens when both sides are exhausted. Bring your CPA to that specific conversation. A six-figure shift from goodwill to equipment on a million-dollar deal can move your tax bill by tens of thousands of dollars without changing the price by a penny.

On the tax side generally: long-term capital gain runs 0%, 15%, or 20% federally depending on your income, plus the 3.8% net investment income tax where it applies, plus Colorado's flat state income tax on top. Ordinary-income buckets get taxed at your marginal rate instead. Your CPA runs the actual numbers. The point is that two deals at the same price can produce materially different take-home.

Holdbacks, escrow, and the seller note you collect for years

Now subtract the money that's technically yours but isn't in your hands.

An escrow holdback of around 10% sitting for 12 to 18 months is a common structure on small deals. It secures the reps and warranties you made. If a customer sues over something from before closing, or the financials turn out to be off, the buyer reaches into that bucket. Most of the time you get it. You just don't get it at closing.

A seller note is the bigger one. Buyers using SBA 7(a) financing frequently need seller participation to make the deal work, and the lender may require that note be on full standby. Which means for a defined period, you receive nothing. Not reduced payments. Nothing.

When I sold the bakery, I carried part of the price myself. I'd do it again, because carrying paper often gets you a higher price and a buyer who'd otherwise be out of reach. But understand what you signed up for: you're now a lender, your collateral is a business you no longer control, and your proceeds depend on a person you can't manage. Personal guarantee. Life insurance on the buyer. A real security agreement. Clear default terms. All of it in writing.

Build your own net-proceeds sheet before you list

Run the hypothetical all the way down. One million dollar headline price:

• Less $100,000 broker commission
• Less $25,000 legal and accounting
• Less $150,000 debt payoff
• Less $20,000 working capital true-up
• Less $100,000 held in escrow for 12-18 months
• Less $150,000 in a seller note collected over five years

Cash at closing before taxes: roughly $455,000. Then taxes come out of that, driven by the allocation page. A million-dollar business just became something in the mid-threes, with another $250,000 arriving later if everything goes right.

That's not a reason to panic. It's a reason to build the sheet before you list, not during diligence. Do it in a spreadsheet, one line per subtraction, and update it as terms firm up. Then ask the real question: is the net number enough to do what you want next? If it isn't, you have time to fix the things that move it. Clean financials, paid-down debt, a customer base that isn't 40% one account, an owner who isn't the only person who can do the job.

If you're a year or three out, start there. The free Business Checkup is a decent first pass at where the value leaks are, and if something in your business is already on fire rather than merely flammable, fix that first. Either way: know your wire number before you shake a hand on the headline number.

Questions I get about this

Todd Schreier has owned a bakery, built escape rooms, rehabbed houses and sold businesses. He runs Schreier Group with his wife Amanda out of Johnstown, Colorado. Call him at (970) 970-8633.