Direct Costs to Sell

How to value a company in a business valuation: The expected economic and dollar costs of marketability and liquidity in a small non-publicly traded firm come from:

· Accounting fees

· Broker fees

· Legal fees

· Management time

· Present Value discount from time to sell, i.e., six to twelve months

Accounting Fees

The cost of getting a company’s books cleaned up to pass a due-diligence inspection can be reasonably estimated based on company size, history of business use of personal funds, history of audits, or lack thereof, history of CPA firm overseeing the books. $350 per hour (estimate) 

Broker Fees     

The most common way to calculate broker fees on micro-size to mid-market M&A firms is known as the Modern Lehman, which estimates broker fees as follows:

· 10% of the first $1 million, plus

· 9% of the second $1 million, plus

· 8% of the third $1 million, plus

· 7% of the fourth $1 million, plus

· 6% of the fifth $1 million, plus

· 5% of the sixth $1 million, plus

· 4% of the seventh $1 million, plus

· 3% of everything above $8 million

Legal Fees

The cost of drafting and reviewing letters of intent, purchase agreements, and transfer agreements can be reasonably estimated based on company size and complexity of ownership structure, and degree of control for the subject shareholder or partner. $550 per hour (estimate)

Owner’s Time

The owner of a small firm will spend a reasonable amount of time getting the books in order and communicating with attorneys and accountants to prepare for the sale or transfer of company assets or stock. The amount of time can be reasonably estimated based on the company size, record-keeping practices, and complexity of ownership structure.  $750 per hour estimated value 

Present Value Discount

The time horizon to sell the business is estimated to be twelve months. Business owners require compensation for the inconvenience of waiting for the sale to occur even though revenues continue to flow up until the time of sale. We calculate a 2% safe-return for this inconvenience.