How do I budget for due diligence and legal fees?

This is one of the most commonly underestimated parts of buying a business, because buyers tend to plan around the purchase price and forget that a real deal generates professional fees long before there is any certainty it will happen at all.

Why these costs can’t just go on the acquisition loan

A lender’s financing decision typically depends on the results of diligence, including the reviewed financial statements, the lease review and confirmation that assets are what they were represented to be. That sequencing means the buyer pays their lawyer and accountant to do the work the lender will later rely on, before the lender has committed to anything. Some buyers can add certain closing costs into the total financed amount once a loan is approved, but the diligence and legal spend along the way is functionally a separate, earlier cash requirement.

The sunk-cost reality

Diligence and legal fees are paid whether or not the deal closes. A buyer who walks away after finding a serious problem in diligence has spent real money to learn that, and it is not recoverable — which is exactly the point of spending it. Treating these fees as the cost of finding out, rather than as money wasted if the deal falls through, keeps a buyer clear-eyed during negotiations instead of feeling pressure to close a bad deal to justify the spend already made.

How to budget for it sensibly

Ask your lawyer and accountant early how their fees are structured and staged for a deal of this size and complexity, and hold that amount as cash separate from your down payment and working capital reserve. Staging the work, with a lighter initial review before committing to full diligence, can also control spend on a deal that turns out not to be viable, rather than committing to the full scope of work up front.

Who typically pays what

Each side generally engages and pays its own lawyer and its own accountant, a convention discussed further in how legal and accounting costs are typically allocated between buyer and seller. There are occasional shared costs, such as certain third-party searches or a jointly engaged appraiser, and those should be agreed in writing before the work starts, not assumed.