If you are preparing to close the sale to acquire a company, then you have likely completed a fair amount of work already. From finding the right company, negotiating with the seller, and completing due diligence, you may feel ready to finish the process quickly. However, there is still work to be done to prepare for closing. In this review, we discuss the buyer’s obligations for closing a business sale.
Prepare The Documents You Will Need for The Sale
The majority of documents needed for closing are prepared by the seller and their broker and attorney. However, there may be some additional documents that you will need to bring with you to closing, such as:
- A copy of the purchase agreement
- Loan documents
- Bank information
- Government and tax forms
You may have already prepared the majority of the documents you will need. Be sure to speak with your broker, attorney, and CPA (if applicable) as they can help you prepare the documents you will need to complete the sale during the closing visit.
Schedule an Appropriate Time to Close The Sale
Be sure to place considerable thought into when the closing takes place. Ideally, you want to schedule it early in the morning. This allows you time to contact financial institutions if any issues occur with the payment. Of course, other setbacks could occur as well, and an early visit during a weekday gives you a chance to address unforeseen obstacles on the same day without significant delay.
Attend The Closing Meeting With The Seller (and Relevant Third Parties)
Your closing visit can be conducted either in person or virtually. Of course, you (the buyer) and the seller will be in attendance. Any additional owners of the company who are involved in the sale may attend as well. Loan guarantors may also attend, unless they have signed personal guarantees previously or provided the buyer with power of attorney. Of course, the owner’s attorney and the buyer’s attorney also attend closing. In some cases, brokers of the deal also attend closing, although this is not often necessary. If there is an escrow agent, then they will be present to help facilitate the deal as well.
Review and Sign The Purchase Agreement (and Other Closing Documents)
The primary purpose of the closing visit is to review and sign the purchase agreement and all additional documents that are a part of the business sale. The purchase and sale agreement, in particular, includes all of the details of the transaction, including the obligations of both parties. This includes the sale price, payment method, etc. It also includes all the assets that are to be exchanged, along with any exclusions of the sale. In some cases, separate asset agreements are involved.
You and your attorney should review the purchase agreement prior to and/or at the closing table before you sign. Additional documents that you may need to review and sign at closing included but are not limited to:
- Lease and vehicle transfers
- Non-compete agreements
- Articles of amendment
- Patent and trademark transfers
- Asset acquisition statement
Make The Payment for The Company According to The Terms in The Purchase Agreement
For many business transfers, the payment is done via an escrow agent. In this case, the buyer may transfer the funds to the escrow agent several days before closing. More specifically, this is usually done by wire transfer or certified check three days prior to closing. In other cases, the buyer may make the payment directly to the seller at closing without the use of escrow. It is important not to wait too long to make the payment as there may be a slight delay (especially with wire transfers). This could lead to setbacks if the seller cannot confirm the funds before or during closing.
Take Over All Business Operations (Which Are Transferred by The Seller)
After the payment is made, the seller will transfer all business operations to the buyer. Many of these tasks cannot be completed until after the buyer has the company in their name. For instance, the utilities cannot be transferred until the purchase is complete.
The buyer and seller can develop a list of all that needs to be accomplished prior to closing to help ensure a speedy process. The list of needs to take over business operations may look different in every case. However, common tasks include:
- The seller provides the buyer with access to all buildings, equipment, vehicles, file cabinets, safes, etc.
- Client, supplier, vendor, and distributor lists are turned over to the buyer
- Certain cancellations may take place if they are not being assumed by the buyer (i.e. insurance policies)
- Utility accounts, phone accounts, and other ongoing subscriptions are transferred to the buyer
A Discussion of The Next Steps for The Business Transfer
Notably, both the seller and the buyer will discuss the training and transition phase that is to come after the sale has finally closed. These details are ironed out before closing, and it looks different in every case. In some instances, the seller is heavily involved and remains on staff to ensure a smooth ownership transfer. In other instances, the buyer may not need much assistance, in which case the seller may not be involved at all or in a limited capacity.
Inform All Parties (Employees, Customers, etc.) of The Ownership Transfer
Last but not least, the closing ends with notifying all parties that the sale is complete. Although certain parties may have already been notified (i.e. the company’s accountant, top customers and employees, etc.), it may come as a surprise to some. It is important to have an established strategy for notifying everyone involved with the company of the ownership change and what it means for them.
Need Assistance? Contact Sigma Mergers and Acquisitions Today
Sigma Mergers and Acquisitions has helped buyers find the right business to buy and assisted them through the process for more than two decades. If you are interested in purchasing a business, then we encourage you to contact us today to discuss your purchase strategy.
