So, the time has finally come.
You’ve prepared your business to be sold.
You put together a rockstar team with a CPA, attorney, and M&A advisor.
You found the right buyer with a great offer.
You survived due diligence.
And now, it’s time to close.
By now, you know every part of the selling process comes with several steps, and closing is no different.
There are still a few things to get done, and you want to make sure they’re done right.
If you don’t know what to expect during this part of the selling process, you’re in the right place. In this blog, we’ll discuss everything you can expect once you’re at closing.
From the closing documents to the training period, this guide to closing will break down everything you need to know to finish strong.
Let’s get started.
Before you reach the closing table, you’ll need to know what documents to come equipped with, and which documents will require your signature (trust us, there will be several).
This can prevent last minute surprises or scrambles for information, which could potentially push off closing for another day or two. Not fun.
Below is a comprehensive list of closing documents you can expect to see at closing.
Asset/Stock Purchase Agreement
This is the governing document that contains purchase price, reps and warranties, final inventory value, final accounts receivable and accounts payable, and other important items. For more information about the purchase agreement, check out our blog “What is an Asset Purchase Agreement?”
The closing statement is prepared by an attorney and contains the purchase price. This statement also establishes any cost adjustments to be paid by the buyer or the seller.
This document details the lease terms between the owner of the business’s real estate (the seller or a third party) and the buyer of the business.
The is is the agreement between the seller and their M&A advisor or business broker which details what the intermediary is to be paid and under what terms they will receive that payment.
Disclosure schedules provide evidence, or “disclose” the information used to create the representations and warranties made by the seller. For example, if a seller makes the representation that they have X amount of current contracts with customers at the time of closing, the disclosure schedule will provide evidence to support that representation.
Escrow Agreements (if necessary)
If there is an agreed upon amount to be held in escrow for a term after closing, the escrow agreements will detail how much will be held in escrow, under what conditions the buyer or seller can draw from the amount in escrow, and how long the escrow account will be active.
This simply confirms the seller is authorized to sell the assets or corporation.
Closing Certificate (Bill of Sale)
The closing certificate confirms the sale of the business and transfers any business assets that aren’t automatically transferred via the purchase agreement.
In the digital age, in-person closing meetings are optional. This can be extremely advantageous for deals between parties in separate states or locations.
However, if you prefer an in-person meeting with your buyer, there are a few best practices to consider before you proceed.
It’s best to schedule this meeting in the morning during business hours when all parties are available and when banks are open. There may be some last-minute details that need to be tied up, and the last thing you want is to create frustration by dragging out closing any longer than necessary.
If possible, it’s also best to schedule the closing meeting for the end of a quarter or pay period. This makes the transfer of monthly expenses much more manageable once the deal is closed.
Who Is in Attendance?
Your closing meeting should be attended by you (the seller), the closing attorney, your business broker or M&A advisor, and the buyer. In cases where third-party loan guarantors and/or an escrow agent is involved, it’s recommended that they attend the meeting as well.
If you’ve been through a months long selling process, you may have already started to experience the emotions of parting with your business. Or, like some sellers, you’ve been so focused on running your business and getting it sold that you haven’t had the time to process those emotions.
In either case, your closing meeting can be extremely emotional.
We’ve seen stoic general contractors break down at the closing table after months of straightforward negotiations, so expect the unexpected when it comes to your emotions.
Whether you’re more likely to break down on the day of closing or jump for joy, it’s important to accept that it will likely be a highly emotional day for you.
It's important to prepare for these emotions and surround yourself with people who will support you and congratulate you on your extraordinary accomplishment.
Items to Transfer
Aside from the closing documents, there are other things that need to be done to ensure a smooth transition. Some of the things that you will need to transfer include:
- Customer relationships
- Supplier and vendor agreements
- Non-assignable customer contracts
- Operating manuals
- Keys, alarm codes, and access codes
- Employee handbooks
- Social media/app/account logins
- Vehicle registrations
- Utility accounts
Aside from all the necessary documents and transfers, there are a few other loose ends to tie up in order to officially cease operations. Some that could apply to you are:
- If any debt remains in the business, you should notify any creditors and let them know whether you or the buyer will be making payments after closing.
- Pay remaining debts and collect accounts receivable.
- Cancel any business permits or licenses.
- If the lease is being transferred to the new buyer, give the lessor a cancellation notice.
- Cancel any insurance policies the new buyer doesn’t assume.
- Terminate employer IRS employer ID number.
- Close any lines of credit taken out through the business.
- Issue employee paychecks and pay any remaining payroll taxes.
- Use the checklist for closing a business provided by the IRS to fill out necessary tax forms.
Training and Consultation Period
The last official order of business after closing is the training and consultation period for your buyer.
Whereas the consultation period usually comes at an additional cost to the buyer if they request it, the training period is often required by buyers (or their lenders) and is allocated in the purchase price.
The terms of the training and consultation period are highly negotiable. It all depends on the needs of the buyer, your preference as the seller, or any lender requirements.
The training period can be as short as a few weeks, or as long as one year (the SBA doesn’t allow the seller to have any role in the business after 12 months).
Training periods can also be structured to include a block of hours rather than long-term periods, which can protect you from the obligation to be in the office on days you’re not needed.
In addition to the training period, a consultation period allows the buyer to reach you via email, phone, or text. Your hourly consultation rates will typically be determined by calculating your hourly wage based on a fair market owner's salary.
To learn more about training and consultation, check out our blog “Post-Acquisition Training and Consultation.”
Now it’s time for you to do something you haven’t had time for in several years: rest.
You may not expect it, but this can actually be difficult for many sellers.
You were the driving force behind your business for years, and you were also a huge part of successfully getting it sold over the past few months. Stepping out of those kinds of roles into a period of rest can feel unnatural.
But trust us, you need it, and you deserve it.
To help prevent some of the difficult emotions that may come after closing, it’s always best to have a detailed exit plan. While financial goals and planning are a big part of your exit plan, you should also prepare for life after the sale.
Knowing where you’ll invest your time after selling can be just as important as knowing where you’ll invest your money.
Prepare for Closing
Knowing what to expect at closing can limit any deflating moments in the final steps of getting your business sold.
We’ve seen this happen on a few occasions. The closing date is set, all parties begin exchanging signatures and forms, but when the bank is contacted, it’s discovered they don’t accept deposits or transfers after 4pm.
Now all that emotion has to stay bottled up overnight, which isn’t fun for anyone.
Being prepared for the closing date can prevent this and ensure the smooth transition everyone deserves.
If you’re curious about the steps leading up to closing, check out our blogs “What is the Process of Selling a Business?” and “What is Due Diligence in a Business Acquisition?”
These resources will give you an understanding of what takes place before you arrive at the closing table.
Still have questions? Feel free to contact us today. We’d love to learn more about you and your business.