After the Closing

Once the closing has occurred, both you and the buyer will have a vested interest in working with one another to successfully complete the transition period. Both of you will also be contractually obligated to fulfill your post-closing covenants to the extent that such obligations exist. You are likely to be motivated to ensure the reps and warranties remain true after the closing. 

For example, you may have represented that the receivables are collectible. If that’s the case, you should assist the buyer in collecting the receivables after the closing, therefore incentivizing you to ensure the transition progresses as smoothly as possible. 

For you, the “real closing” has not occurred until the following has transpired:

• You have fulfilled your transition.
• Any post-closing adjustments have been made, such as working capital adjustments.
• You have received all your money due.
• The earnout periods have expired.
• You have satisfied the terms of employment and consulting agreements.
• The indemnification period has elapsed.

While you may have reason to rejoice at the closing, don’t get too caught up in the celebrations. You should not be ready to fully “let go” until all of the events above have occurred. 

There generally won’t be a defining moment, but one day you will wake up and realize you have finally completed all of your obligations. Congratulations! When that happens, the largest transaction of your life will be successfully behind you.

“An entrepreneur is someone who will work 24 hours a day for themselves to avoid working one hour a day for someone else.”

– Chris Guillebeau, American Author and Entrepreneur

Conclusion

The best problem a seller can have is struggling to find a new passion after selling their business. And hopefully, one day, you, too, will finally take up watercolors or get around to reading all those books that have been piling up. Until that point, though, until the first hints of boredom have snuck up on your afternoon, don’t assume the transaction is finished. Expect last-minute problems, expect fierce negotiations over the purchase agreement, and be aware that even then, problems with those reps and warranties could stymie your long walk into the sunset. 

Once again, understanding these mechanisms is your best defense against them. So, double and triple-check the wording of your reps and warranties, maintain a healthy relationship with the buyer, and do your best to be honest. And if you’re lucky, you too could find yourself bored, early into the afternoon.