What are Closing Costs?
The Short Answer
Closing Costs explained simply
Closing costs are the fees and expenses that both the buyer and seller pay when a business sale is finalized. These costs are separate from the purchase price of the business itself. They cover the services needed to legally transfer ownership and complete the transaction. Think of them as the administrative fees for making the deal happen.
Real-World Example
Closing Costs for a Small Retail Business
Imagine a small retail business selling for $200,000. The closing costs might include:
- Legal Fees: $3,000 (for drafting agreements and reviewing documents)
- Escrow Fees: $1,500 (for holding funds and documents until the sale is complete)
- Brokerage Fees: $10,000 (if a broker was used, typically paid by the seller)
- Due Diligence Fees: $500 (for third-party checks)
In this case, the total closing costs could be around $15,000, split between the buyer and seller based on their agreement.
Why this matters
Closing costs matter because they add to the total expense of buying or selling a business. Both parties need to budget for these costs to avoid surprises. Understanding who pays for what helps in negotiating the final deal terms.
Always get a clear breakdown of all closing costs upfront. This helps you budget and negotiate better. Don't wait until the last minute to understand these fees.
Always get a clear breakdown of all closing costs upfront. This helps you budget and negotiate better. Don't wait until the last minute to understand these fees.
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