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.
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 [email protected].
|