4 minute read

Who Should Attend Your Business Sales Closing?

For most people, the sale or purchase of a business is one of the most significant events in their life, and for many, it only happens once. That doesn't leave a lot of room for error. Closing is a particularly important day, and you need to be prepared well before the actual closing date.

Required Attendees

Almost all of the paperwork should be complete prior to closing; however, in my experience, there have been many times when issues occur that need to be addressed immediately. For that reason, it's important to have all the right people either at closing or available during that time.

For a corporation, all corporate officers and shareholders, including the corporate Secretary and the directors, should be present for closing. In most states, spouses should also be there as well. For other business entities, all partners and/or principals and their spouses need to be present to sign. It's a very prudent idea to have your attorney, accountant, and other decision makers either present or available in case an issue comes up. Sometimes, there is a party out of town that cannot be there in person; fortunately, they can typically sign digitally or remotely or designate another officer to sign for them. Arrangements for that should be made in advance to prevent delays.

In addition to the officers, any brokers involved in the transaction and occasionally a lender representative (if loan docs will be executed) should be present. If there are key employees signing employment agreements, they should be executed prior to closing and those documents should be presented at closing. Depending on the state and structure, you may have an escrow officer or an attorney handling the closing. There will usually need to be a Notary as well; escrow or the attorney will usually supply a notary.

The Closing Process

If all goes as planned, everyone signs, the transaction closes, funds are dispersed, and the Buyer will take possession of the business at the agreed upon time and date.

Common Closing Issues

Unfortunately, sometimes issues occur during closing. Sometimes deal terms need to be adjusted. Most often, the issues we see come up in closing relate to changes in inventory. The inventory count is done just prior to the closing of the transaction and usually needs to be adjusted up or down. Depending on the purchase agreement, that may affect the purchase price, the allocation of the purchase price, and sometimes it will affect the loan or promissory note to the seller if these exist. This can cause a domino effect, especially if there is a lender involved. This could trigger adjustments and additions to final documents.

It is critical for the Seller to have an accurate gauge on the amount of inventory they have up until the close. Many small businesses do inventory once a year, and I have seen some that have never done a physical count. This almost always creates an issue. It is crucial to have an accurate count of inventory prior to negotiating the inventory included. There are many outside companies that will come out and do a count for you, and it is well worth the money.

Other common issues arise when certain pieces of equipment are not in working order or are missing when the walk-through is conducted. Buyers should always make sure all of the furniture, fixtures, and equipment that are listed with the sale are actually on the premises and in working order.

Purchase Price Allocation

Occasionally, there are purchase price changes and/or allocation of purchase price changes. If your transaction is structured as an Asset sale, you should make sure the Allocation of Purchase Price is agreed to prior to signing final documents. This needs to be agreed upon by both parties and is a very important part of your tax planning, as both parties need to file the same amounts with the IRS. The Allocation of Purchase Price is an essential piece of the transaction.

To sum it up, this is a particularly important day. Having all decision makers and advisors present or available for closing is critical.

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