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Small Business Resources > Closing The Deal

Closing The Deal

After the parties have agreed on the principal terms of the deal (such as, the price, the terms of payment, and the basic structure of the transaction), and those terms have been memorialized in a term sheet or a letter of intent, the parties must complete the last several steps before the closing. The buyer must conduct its due diligence investigation and satisfy itself that there are no financial, legal or other problems with the business which would stand in the way of its acquisition.

Sell Your Business Online The seller must provide disclosure to the buyer to enable him to conduct his due diligence. The seller must also work to resolve any problems or issues which inevitably surface during the due diligence process, or adjust the terms of the deal to account for any such issues. Lastly, the parties must prepare and negotiate a purchase contract which will contain their respective representations and warranties and determine to the extent possible the parties’ rights and obligations after the closing. The following are several basic suggestions, for the seller, to make sure that a good deal reaches the closing.

1. Provide Full Disclosure
In conducting its due diligence investigation, every buyer will request and expect that the seller provide extensive (in some cases, virtually unfettered) access to its books, accounting records, and other business information. Accommodate the buyer. Indeed, help the buyer by providing full disclosure and full access to your records and information. As we’ve said before, it is always the best policy to be forthright and open-handed about providing information and answers to the buyer’s serious and legitimate questions. It is in your best interest to satisfy the buyer that your business is everything you say it is, because only a confident buyer—a buyer who has been satisfied by your answers to his questions—will proceed to the closing.

2. Anticipate and Address Problems
During virtually every due diligence process, some issues or problems—some serious, some not; some known to you, some not— will be uncovered by the buyer. Your job, as the seller, will be to resolve those problems, again, in a way that satisfies your buyer. Naturally, some problems you may not be able to resolve before the closing. In this case, the terms of the deal may need to be adjusted in order to satisfy the buyer and close the deal. For instance, one common device is setting aside a part of the purchase price in escrow to satisfy any unresolved liabilities (tax liens, environmental claims, lawsuits, etc.) after the closing.

However, the central point here is that most of the problems or issues that the buyer will uncover during his due diligence will already be known to the seller. Therefore, it is to the seller’s advantage to try to identify, address and resolve these problems ahead of time. Don’t wait for the buyer to find the problem. If there is a tax lien on your business – pay it; if there is a legal claim – settle it; if there is a dispute with a vendor – resolve it. Clearly, the fewer problems there are for the buyer to find, the greater the chance of a successful closing, and the smaller the chance that some seemingly minor problem will derail an otherwise solid deal.

3. Use Professional Advice
Lastly, the seller and the buyer will enter into a purchase agreement which will set forth the terms and structure of the deal, the representations and warranties (most importantly, of the seller), and govern the rights and obligations of the parties post-closing. For this reason, this is a serious and critically important legal document. Its negotiation and preparation should not be taken lightly. Most importantly, secure the help of an attorney with experience in business transfer transactions. A seasoned corporate or business attorney will be familiar with the issues involved, will anticipate problems, and will help find solutions. If you do not already have such a lawyer, your M&A advisor, business broker, accountant or other professional should be able to provide a referral.

About the Author
About the Author
Geoff Green connects business sellers with business buyers and also works with business owners to increase the value of their businesses. Geoff can be reached at www.arizona-business-brokers.com or by email at geoff@arizona-business-brokers.com.











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