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Execute the Closing

Preare to sign the final agreement and ancillary documents.

Objective

Review, approve and execute all documents on or before the day of closing.

Tasks

Ensure no surprises at closing. Insist on seeing all documents required to close prior to the closing date. Make sure all assets are conveyed properly and you have no further liability other than specific duties you have agreed to perform post-closing. Retain good legal counsel!

Best Practices

A good attorney experienced in business sales is priceless. There are a whole host of issues involved in transferring the stock and/or assets of a business to a new owner. This is the critical step in the process that pays to have good counsel and intermediaries to assist you. In addition to the legal and business issues, the transaction will likely trip a variety of financial and tax consequences to the owners. Get good advice from reputable professionals!

Based on my experience as a business owner who has both sold and acquired businesses, and based on my experience assisting clients to sell their businesses, here are some best practices to ensure a smooth closing:

  1. Pay close attention to Seller Representations and If you fail to disclose a material fact that becomes known to the buyer after closing, you could incur substantial liability and lose most, if not all, of the benefit you bargained for. If the buyer has not already done so, make sure they sign the `Seller’s Disclosure Statement’ where you disclose any material issues (See sample in Step 5.)
  2. Make sure the agreement is crystal clear about what assets and liabilities are being transferred to the buyer and which are not being Be cautious about very broad descriptions if not all assets and liabilities are being conveyed. If you expect to retain cash accounts, real estate (if you own the building), receivables, or intellectual property, make sure those assets are expressly excluded.
  3. Make sure you have the rights to assign the contracts and agreements you are conveying to the Some contracts may not be assignable. Make sure your lease can be assigned and you get a release from your landlord. You may have personally guaranteed your lease and will want to make sure the personal guarantee is lifted when the new owner takes over.
  4. Make sure you can transfer any licenses or permits required to continue operating the business. Some licenses and permits may not be transferable, meaning the buyer will need to obtain their own licenses and Don’t allow them to piggy-back on your licenses and permits after executing the agreement.
  5. If certain creditors of the business are being paid off out of the proceeds of the sale, make sure the list and amounts are This includes amounts owed on furniture, fixtures, equipment, and vehicles. Likewise, if any notes are being assigned to the buyer as part of the deal, make sure you get an acknowledgement from each creditor that they are releasing you from those obligations. Make sure you get the consent of all secured parties.
  6. Prior to closing make sure an escrow agent has been retained and an escrow account has been set up, if not already done You may or may not have received a deposit when you accepted the offer. An escrow account will be needed to close. Most attorneys that handle business closings also have escrow accounts. You and the buyer will likely need to sign Escrow Settlement Instructions.
  7. If you have partners or other owners, make sure they have signed the Corporate Resolution to Sell. (See sample in Step 5).
  8. Take inventory as close to the closing date as possible to ensure an accurate accounting. If possible, have the buyer or buyer’s representative present for
  9. If the business has employees staying on with the buyer, obtain release for state employee payroll
  10. Obtain a release for state sales tax and federal income You will want to ensure you have no tax liability from the day of closing, unless you have expressly agreed otherwise.
  11. Arrange for utilities to transfer on the day of
  12. Review with the buyer and your counsel at least three (3) days before closing, the closing worksheet, estimated closing costs of each party, and cash to be released to you at closing. Verify the form of payment, e., cashier’s check or wire transfer. If wire transfer, make sure the buyer receives the wire bank information from the escrow agent.

Tools and Tips

Depending on the size, nature, and complexity of the sale, you may not need your own attorney. In many small business sales, the closing can be handled by a closing attorney who is a neutral party – much the same way a title company handles the sale of real estate. The attorney does not represent one party over the other. His or her role is to implement the decisions already negotiated by the parties and ensure all of the paperwork is in order. He or she can also mediate the resolution of any last-minute disputes that may arise at closing. The costs of the closing attorney are typically split equally between the buyer and seller.

After the Purchase and Sale Agreement has been negotiated, create a Closing Worksheet and discuss each item with the buyer. From that worksheet, create a Closing Checklist of all the ancillary documents and actions required to consummate the transaction. The devil is in the details at this point in the process. Dot the I’s and cross the T’s, as they say. Trying to pull together all these items on the day of closing, because you were not attentive to them in advance, is a recipe for disaster. Good counsel can help you get everything in order and reviewed in advanced, so there are no surprises on either side.

Summary

Transaction and Closing Management are about ensuring a smooth transaction. The transaction can die the death of a thousand cuts if it is not managed properly. Anticipate the gating issues. Ensure all the ancillary documents and actions needed by both parties are in order prior to attending the closing. The closing should be perfunctory in nature. You show up to get a check and shake hands.

There are few events more satisfying to a business owner than selling his or her business for the price and terms anticipated at a successful closing. This is the finale, but not the last step. Most business sales require you to take certain actions after the closing. Let’s get right to it and get this thing done!

Examples

  • Checklist of Possible Closing Documents and Actions
  • Sample Closing Costs Worksheet
  • Wire Instructions
  • Estoppel Request Form