Closing on a Business

Take care of small details before the closing.

Whether you are the buyer or the seller of a business, a final point will come during the transaction stage when all of the business-related equipment, inventory and intangible assets will change hands. This is the closing, and before it can take place, both parties must agree to specific terms, fees and financial arrangements. Once the closing is over, the new owner begins the daily operations and the seller has no more obligations, so it's imperative to foresee and address all material concerns before the closing date.

Instructions

1. Provide a copy of the contract to the closing agent well in advance of the closing date. This is important if real property, such as a building, is included in the purchase contract. A commercial loan office in a bank can serve as a closing agent if the bank is financing the purchase of the business.

2. Require a title insurance policy for any transaction that involves real estate. Title insurance ensures that the deed to the property is free from any liens or encumbrances and that it may freely pass from the seller to the buyer. Usually, both parties split the cost of this policy (see Resources below).

3. Check the condition of all real estate, inventory, equipment and personal property that will accompany the sale and document a dollar value for each. This value breakdown is important to both parties, as it will appear on the tax statements for both. If the equipment is extensive or the value is high, an independent auditor report will provide an unbiased value.

4. Collect all the documents that relate to business debt that will pass to the new owner. For instance, if the previous owner of a dry cleaning business purchased new pressers on account before the sale, that debt will pass to the buyer. Not only must you notify the creditor, the buyer must agree, in writing, to honor the debt.

5. Arrange for a training period if the transaction involves the seller training the buyer to run the day-to-day operations. Most training periods take place after the closing but the arrangements must be in place before the business changes hands.

6. Put it in writing. In most states, if any portion of the contract is not in writing, it is not enforceable. Oral contracts are good during the initial stages of negotiations, but they will rarely hold up in a courtroom. Once you sign the original contract, you must address all additional items on a new piece of paper, which both the buyer and seller will sign and date.

Tips & Warnings

• Have an attorney look over the contract before it closes. Some attorneys act as closing agents.

Resources

• Chicago Title Insurance