You’ve marketed your business, found a qualified buyer, and agreed to terms. Now that you’ve completed most of your sale tasks, it’s finally time to close the deal.

While this is an exciting time, you should also be sure to use considerable caution. The last thing any owner wants to do is watch a deal fall apart this close to the finish line. With this in mind, let’s take a closer look at the most important steps to take to ensure your sale closes smoothly, and how working with a business broker can help ensure the odds of a successful transaction.

General Tips to Get to a Successful Closing

Organization is critical to the closing process. To minimize the risk of unforeseen challenges developing, make sure that all necessary documentation (business and financial records) are organized and ready to go.

A Confidential Information Memorandum (CIM) can help outline the opportunity you’re offering to buyers while protecting any sensitive business information. It makes sense to work with a qualified mergers and acquisitions (M&A) advisor to draft this document, as it will not only help protect you but should also make the closing process move more efficiently.

Be sure to include your Chief Financial Officer (CFO) in the closing process. A CFO can help answer key financial questions and identify any potential difficulties that may arise during the transaction.

Before going to market, prepare a multitude of financial summaries, including a balance sheet, income statements, gross margin analysis by product or service, and revenues by product and by geography. Consider paying for a Quality of Earnings Report (QE) prepared by an independent firm as a part of this. Preparing and organizing this information well ahead of time can help ensure a fast and problem-free closing. It’s also important to be able to provide this information quickly to potential buyers or anyone who has signed a Letter of Intent and is engaged in due diligence.

While all of this may seem a bit overwhelming, it’s essential to maintain perspective. These are all routine aspects of selling a business; exhibiting added diligence and vigilance now will pay off later.

Sellers should also be transparent with buyers throughout the process. All issues and liabilities must be exposed, no matter how close you are to the finish line. Buyers and investors understand that all transactions have risk; being less than upfront is a major red flag and can easily derail a deal.

By following these steps, sellers add value to the process and allow buyers to focus on what they need to do to effectuate a successful sale. Ultimately, both parties have the same goal and should work together to achieve it.

Preparing for a Closing

Smart preparation is a top priority when closing a deal, and it should include an exhaustive checklist. Here are a few of the items that should be on your pre-sale agenda:

  • Choose a time and location that is convenient, but early in the day, as financial institutions and government offices will be reachable in case you need their services. It’s also a smart idea to close on the last day of the quarter, if possible, as this will simplify accounting (carried over expenses, for example).
  • Ensure that your corporate and governmental documents are in order. This may include passing a corporate resolution to approve the sale and its terms. You may also need documents from your Secretary of State’s office or the IRS to authorize the transfer of assets, including vehicles, real estate, and intellectual property.
  • Prepare a list of assets that are included and excluded from the sale. This will help ensure that everything that is supposed to be transferred actually exchanges hands, and there is no last-minute confusion.
  • Create a final list accounting for all accounts payable and accounts receivable. Once again, selling at the end of the month will help keep accounting as streamlined as possible.
  • Create a list of all work operations or projects that are currently underway so that the buyer can hit the ground running.
  • Ensure that all insurance requirements related to the sale are met and that all policies are set up to expire or be in force as soon as the transaction is effected.
  • If necessary, prepare a copy of the building’s lease, including all terms and relevant information.
  • Prepare a bill of sale and all loan documents. These files may include personal guarantees, promissory notes, seller closing costs, and more.

The Closing

On closing day, buyers and sellers (and possibly spouses, if the deal is taking place in a community property state) will meet with their brokers, attorneys, and escrow agents to finalize the transaction. During this process, all parties must agree to any post-closing adjustments to the sale price (depending on inventory valuation and other factors). Then, both sides must review and sign a long list of documents. These include:

  • Loan Documents
  • Lease Transfer Documents
  • Succession Documents
  • Franchise Documents (If Any)
  • Purchase and Sale Agreement
  • Bill of Sale
  • Any Consulting, Employment, or Non-Compete Agreements in Force
  • Patent, Trademark, Copyright, and IP Transfer Agreements
  • Closing Sheets Listing a Final Accounting of All Financial Elements of the Sale
  • IRS Forms

Finally, once all forms are reviewed and signed, the buyer submits the funds for the purchase, and the deal is concluded. There will also be some additional housecleaning post-sale; this includes sale announcements and legal documents that are required to formally transfer ownership from one entity to another.

Avoiding Last-Minute Pitfalls

As you can see from the checklist above, closing a business sale is no small task. It requires significant coordination between multiple parties and a lot of communication. Additionally, this all must be done in a timely manner. In order to tick these boxes and ensure that a deal isn’t bogged down, it’s crucial to be detail oriented. By using a checklist, you can help ensure that you don’t miss any mandatory steps in the process.

For some business owners, being extra-conscientious isn’t quite enough. Instead, they choose to work with a business broker. The benefits of doing so are considerable: Business brokers can expedite a sale on your preferred terms, as they are experts at properly valuing and effectively marketing companies. They also know how to match buyers and sellers, as they understand prevailing market conditions and the likely purchaser for each type of business.

Aside from expediting deals, a business broker can also help ensure that they are closed without incident. As you can see from above, each sale requires considerable paperwork and effort. Business brokers can make sure that documents are prepared and submitted properly.

Additionally, the process of closing requires significant back and forth from buyers and sellers. For example, purchase price adjustments that are based on changing valuations of inventory or other variables can necessitate negotiation. Business brokers are expert negotiators and can help sellers get their deal over the finish line without making unnecessary concessions.

Why You Should Work with a Top Business Broker in CT

While business brokers often play an integral role in the successful conclusion of a sale, not all brokers are equal in terms of skill and experience. To put yourself in the best possible position, it makes sense to work with a broker that has a long track record of success.

At VR New Haven, we’ve built a reputation for being one of the most trusted business brokers in Connecticut and throughout the East Coast. If you’re considering exiting your business, we urge you to call VR New Haven today, and we’ll show you just how valuable the right broker can be.