Leading up to closing, both buyer and seller will be communicating with the closing attorney’s office to get them everything they need, in order to prepare the closing documents and the closing statement. The closing attorney will be doing their checks for liens and outstanding liabilities, as well as getting estoppels from landlords, franchisors, creditors, etc. They don’t start working on all of this until after the due diligence contingency has been lifted, so we want to make sure that they have a few weeks to get everything done, before your target closing date.
This can be a hectic and confusing time for both buyers and sellers, as they are working together to prepare for the closing and anticipating the transition of business operation and ownership. So, we wanted to give buyers and sellers a heads-up as to what to expect as we head towards closing and get to the closing table.
A few days before closing, the closing statement (sometimes called the settlement statement) will be sent by the closing attorney to all parties for approval. It will have all of the credits and debits to each side, any pro-rated fees, as well as closing costs. In business sales, closing costs and the closing attorney’s fees are usually split 50/50 between both buyer and seller for normal transaction costs. This split cost is usually somewhere in the neighborhood of $800-$1,500 each but can vary based on the closing attorney and the scope of work needed in each particular business transaction. Additionally, if the closing attorney will be drawing up specialty items, like a seller note for financing or an employment contract, then usually the cost of those items is negotiated between buyer and seller, depending on who the beneficiary of the item is. All financial aspects pertaining to the business sale are included on this document, and both parties will need to sign it at closing. If there is anything that is inaccurate or needs to be changed on the statement, then your business broker or closing attorney needs to be made aware as soon as possible, so changes can be made, and a new statement can go out to everyone.
Wire Funds To Close
The buyer or the buyer’s lender will use the amount due on the closing statement to wire funds to the closing attorney, so it is important to get it right. Buyers must wire funds needed for closing at least one business day prior to closing, so that it is present in the closing attorney’s escrow account on closing day. If this action is not taken, then the closing could be delayed, which will cause a domino effect of other issues, since everything has already been set up for the buyer to take over the business on the closing date. A lender will wire funds on closing day once all loan documents have been executed, so it is important for buyers to remain in touch with their lenders on closing day, to ensure that they have the loan package completely executed and that they are funding the loan that same day. Without funding, a business sale isn’t truly closed, but it is possible to close on one day and then the bank will fund the next day. That is what we would call a “soft close.” It really comes down to what time of day the closing is taking place. That’s why it’s generally a good idea, if there is a lender involved in the transaction, to set a closing time earlier in the day, especially if it’s on the last day of the month, as they will most likely have multiple closings.
Either your business broker or the closing attorney’s office will initiate the scheduling of the closing date/time. The closing date should be the date on your executed Asset Purchase Contract, but many transactions can close early, so if the closing date is going to be changed, please make sure that all parties, including the closing attorney and/or lender are aware too. We will see what time slots the closing attorney has available on your particular closing day, and we will coordinate with all parties to choose a time that works for everyone to attend.
All parties will normally attend a closing together and sign documents at the same table, but parties can sign and close separately, if need be. In fact, we often see remote closings as well, where the closing package will be mailed to one or more parties, they will sign and have it notarized, and then they will overnight it back to the closing attorney. This happens most often when we have out of state or international buyers, but it really can be done with any closing. This remote close process will obviously need to be done a day or two before the actual closing date, so that the closing attorney has the signed documents in hand on the closing day. Because all of the documentation needs to be prepared in advance, if you will be doing a remote closing, please make sure your business broker, closing attorney, and/or lender knows this as soon as possible after you go under contract.
Signing Documents at Closing
When everyone is at the closing attorney’s office, parties will be asked to sign all of the relevant closing documents and the buyer will sign loan documents, if applicable. Expect the business brokers involved in the sale to be there and possibly the lender if they are local. Once all documentation is signed and the closing attorney confirms that they are in possession of all funds, and the file is officially closed, then they will be able to disburse funds to the seller, and anyone else owed money out of the closing proceeds. All parties will be given a copy of the executed closing package for their records, and then the fun of entrepreneurship begins for the buyer.
As soon as the buyer signs on the dotted line at closing, and the transaction has been formally closed, then the familiarization period begins. The buyer is now 100% responsible for the operation and ownership of the business, and the seller will spend whatever period of pre-negotiated time with the buyer to teach them everything they need to know about running the business. After familiarization has passed and the ownership handover is complete, then the seller is free to move on to their next adventure.