11: Close the Transaction

Summary of the Process

A) Fund the transaction
B) Coordinate the closing with escrow
C) Close the transaction
D) Begin the transfer process

The closing can be conducted either physically or virtually, with most closings now being conducted virtually. Funds are typically transferred via wire to ensure security and avoid delays, and if escrow is used, it’s recommended to wire funds three days prior to closing. The escrow agent acts as a neutral third party to protect both the interests of the buyer and seller. The closing may occur at a physical location or virtually, with documents signed electronically or overnight. The closing date is a target and can be changed with the parties’ consent, and all officers should be available to sign the documents. Maintaining a good relationship with the seller is crucial for resolving any post-closing issues.

A) Fund the Transaction

Following is more information regarding how transactions are commonly funded:

Wire Transfer Only: Closing funds must generally be made by wire transfer to ensure security and avoid delays. Certified and cashier’s checks are not accepted unless deposited and fully cleared well in advance of the sale.

Funds: Only wire transfers are accepted to fund the transaction at closing. Funds must generally be transferred three (3) business days before the closing date if using escrow. Cashier’s checks are not accepted due to recent numerous incidents of fraud. Check with their bank beforehand to ensure no daily wire transfer limits exist. Banks sometimes maintain restrictions on the amount of a wire transfer

B) Coordinate the Closing with Escrow

Following is more information regarding the escrow process:

The Purpose of Escrow: An escrow agent serves as a neutral third party that independently protects the interests of both parties. An escrow agent is impartial, acting only on mutually agreed-upon instructions. Escrow agents ensure a seller transfers clear title to the assets, and they often hold substantial sums of money during various phases of a transaction. It’s critical these funds are held by an independent, objective third party to ensure there are no additional encumbrances against the business and that both you and the seller are in agreement prior to releasing funds.

Escrow Fee: The escrow fee is normally split 50/50 between the seller and the buyer. Escrow fees range by escrow firm.

Explore the crucial role of escrow in facilitating the transaction process when selling or buying a business.

C) Close the Transaction

Following is more information regarding the closing process:

Closing Type: Physical closings are now rare. Most closings are virtual, in which the documents are signed electronically or “overnighted” to the parties for signatures if escrow requires original signatures. These documents are then sent back to the escrow agent, who releases the funds to the seller at closing.

Closing Date: The closing date is a suggested target and is not set in stone. We recommend you’re prepared to change it to accommodate unexpected changes in circumstances.

Signatories: We recommend all officers are available to sign the closing documents. If all officers aren’t available, a corporate resolution can be used in lieu of a physical signature.

Transfer of Vehicles and Other Titled Assets: For asset sales, the parties should list all vehicles and titled property included in the asset list, which will be attached to the purchase agreement. When the parties sign the Bill of Sale, legal ownership of all property in the asset list, including any vehicles listed, transfers from seller to buyer. While you gain legal ownership of the vehicles at the moment of signing the Bill of Sale, the parties must still arrange for the registration of the transfer with the Department of Motor Vehicles, which may happen days or weeks later. For stock sales, legal ownership of all property transfers from seller to buyer when the stock certificates are handed over if the vehicles are owned by the seller’s entity. If the vehicles are owned by the seller as an individual or another entity, they must be separately transferred.

Dealing with Last-minute Problems: The sale or purchase of a business never goes as smoothly as expected. Problems almost always remain post-closing, too. For this reason, it’s best to maintain an excellent working relationship with the seller so you can easily cooperate to resolve such problems.

Navigate through the intricacies of the M&A closing process with our comprehensive guide.

D) Begin the Transfer Process

You should take the following actions after the closing:

• Obtain the Client List: The seller should provide you with a client or customer list and assist with the transition of these relationships.
• Arrange Employee Meeting: You should meet with the seller to inform employees regarding the change in ownership. The guidelines on informing employees vary widely and largely revolve around the dynamics of the seller’s current relationship with employees. You should present a strong and persuasive vision of the company moving forward and assure the employees of their continued employment. The meeting should be positive and upbeat, and all employees should be reassured of their futures, if suitable.
• Begin the Transition: Work with the seller to complete the training and transition period, and document the completion of the training in the training log.
• Transfer Key Assets: The seller should provide you with supplier lists, trade secrets, software, equipment manuals, alarm and computer access codes, safe combinations, and all keys to the premises, file cabinets, and vehicles.
• Contact Vendors and Suppliers: After the closing, contact all vendors and suppliers to notify them of the change in ownership.
• Meet with Key Customers, Vendors, and Other Relationships: Meet with the seller and all key relationships following the closing and assure the individuals that the transition will be a smooth, seamless process with minimal disruptions.
• Discuss Collection of Accounts Receivable: If the seller is retaining accounts recievable, meet to discuss how to collect them post-closing. The seller normally continues to invoice customers using the business address, and the buyer receives the payments and hands them over to the seller. This is usually a simple process because the parties will be together at the business performing training during the same period.