“The time to stop talking is when the other person nods his head affirmatively but says nothing.”

– Henry Samuel Haskins, American Stockbroker

The scene is like a living, breathing postcard from paradise. Clear skies, white sand beaches, warm ocean breezes. And, look! There’s you – tanned and rested, a John Grisham legal thriller in one hand, and a piña colada in the other.

In one sense, it took a lifetime to get here. You spent decades building your company and a grueling 12 months to get it sold. But you did it, and now you’re reaping the rewards. You’ve heard about former lifelong business owners who found it impossible to relax after successfully exiting the fray. But that’s not you. There are going to be plenty more postcards like this one. Life is good.

Then the phone rings and life is about to get a little less good. It seems there was a problem with your financial statements. The buyer of your business discovered that the numbers aren’t compliant with generally accepted accounting principles (GAAP) and as a result, EBITDA was overstated. Not a big deal, you think … your deal closed six months ago, and it’s the buyer’s problem now. The buyer is demanding a reduction in the $6 million purchase price. But, hey, the deal is already closed!

You call your attorney in a fit of fury. Your attorney asks if you remember signing a representation or warranty stating that your financials were prepared in accordance with GAAP. Your response: “What’s a representation or warranty?”

Welcome to the final stage of the transaction – the closing – where, in extreme instances, a misrepresentation – inadvertent or otherwise – about the company you’re selling, or have already sold, could put the kibosh on the deal or a major drain on your bank account – the account where you keep the proceeds from the sale. Let the headaches and lawsuits commence.

As you’ll read below, the closing is a critical part of the process and not just a formality. 

The purchase agreement is a hotly negotiated component of the closing process. 

In the chapter that follows, I’ll touch on everything you need to know about closing the deal and what you can do to ensure a smooth and uneventful process. After all, I wouldn’t want to spoil your day at the beach.