The closing is the best part of the business acquisition process. You get paid and the complex, sometimes emotional process ends. If highly trained professionals handle it, the process is seamless and quick. If your team is skilled in the arena, they can deal with emotions at the closing table from both the buyer and seller and remain calm through the entire process, even if unexpected events arise. Using an escrow company to handle the closing is the best avenue since they act as a neutral site and work for both the buyer and seller with no bias.
When selling you need to obtain specialized help. The closing process is no exception. We strongly recommend that an escrow company or an attorney’s escrow account be used to close a transaction.
The following are some words of guidance: either the seller’s attorney or the buyer’s attorney will want to close the deal in his office. If
a lender is involved in the business’s acquisition, the lender will normally require a third party to close and disburse funds.
While the parties involved may want to control the process in their offices, this is exactly what the lender may want to prevent. There are several reasons for this: convenience, control, and the expense incurred by attorneys who make more money by drafting closing documents and spending time at closing.
The seller’s attorney should help prepare and review all the pertinent closing documents prior to closing but should allow an escrow company to handle the actual closing. Make sure the escrow company and attorney coordinate early in the proceedings regarding who will prepare what documents. Getting them both involved early in the process will alleviate problems and delays at closing. If real estate is involved with the acquisitions, the escrow company will also be able to handle that transaction; they will simply get a title company to perform the title search and provide the title policy to be used in closing.
Even the best closings we have been part of have often been filled with tension, In many cases, the parties sitting at the closing table have baggage left over from the negotiating process. If for nothing else, the escrow company acts as a neutral site. If the principals have had problems negotiating and hard feelings are prevalent, the escrow company acts as a buffer. The individual assigned to handle the closing does it for a living and will anticipate problems and correct them immediately. These people usually have the acumen and demeanor to handle personalities and tensions. We have seen escrow closers save transactions that the buyer and seller would have lost if there had not been a buffer between them. Many escrow companies have attorneys on staff with support personnel who can edit closing documents at a moment’s notice.
Title and lien searches
There is a point in the acquisitions process when the escrow money from the Offer to Purchase or Definitive Agreement is cashed and placed in the escrow company’s escrow account. This signifies the opening of escrow and is the point when the escrow company starts performing title and lien searches. If real estate is part of the sale, then there needs to be enough time for the escrow company to appoint a title company to perform the title search and prepare the title policy. The additional time is required in the event there is a need to cure title defects or “clouds” with the title and to prepare environmental reports. During the same period, the escrow company will also prepare a lien search on the business.
Escrow companies often assist in “tying” up loose ends. For example, it is quite common for a paid-off loan to have been improperly filed by the lending institution, and the escrow company will assist in removing the lien from the record. This takes time but is essential to complete the business acquisition. If many pieces of machinery and equipment are being financed, and/or you have numerous loans, liens, or filings on the equipment being conveyed, running a lien search and obtaining approximate payoffs in advance of the closing date will help facilitate the loan closing and help to prevent delays in funding.
The escrow company will need the signed Offer to Purchase or Definitive Agreement before they can begin preparing the actual closing documents. If leases are being transferred or assigned, the acquisition documents will also be needed as well as original titles on any vehicles and equipment leases being conveyed. A new lease will need to be given to the escrow company as soon as it is signed.
After they have all of the pertinent documents, many escrow companies can be prepared for closing in a few days. No one can predict how long it will take to prepare documents when working with banks, leasing companies, and landlords. The escrow closer assigned to your deal will cur supply the seller and the buyer with a checklist of the items needed and recommend a timeline for everyone to follow. Simply stated, the closing process is all about getting the documents needed in the correct sequence and in a timely manner. If the simplest of items are missing, the closing can and will be delayed.
The closing date in the contract of sale should be looked at as a target date only. All parties should be aware that unforeseen events happen. By the time a deal is near closing, there will be numerous parties involved with the transaction. Coordination between everyone and the paper flow usually creates delays. Both the buyer and seller must be flexible. No one can demand a fixed closing date. It is commonplace that the closing date is revised more than once; therefore, patience is the operative word. It is crucial to keep all contracts up to date with any changes to the closing date or other variables to ensure a legal paper trail.
The Closing Table
There is always a feeling of uncertainty at the closing table. This is the culmination of everyone’s efforts and everyone is nervous. This is the final step but the deal can still be lost. If the closing goes well, everyone is happy. If the closing does not go smoothly, the deal will be, at best, delayed.
If the parties involved have done their job preparing the pertinent documents and the deal is in the hands of a professional closer, then relax and enjoy the process. If the SBA or a conventional bank funds the transaction, the process normally takes longer than an all-cash or an owner financed deal. On average, the closing lasts less than an hour. The seller will walk away with a check, copies of all signed documents, and a well-documented closing statement showing all payments and pro-rations. This is the moment of victory for all parties.