Once the seller has found a suitable buyer for the business and both have agreed upon the final terms of the deal, it’s time to get organized and plan for the big closing day. For an easy transition, certain steps must be taken before, during and immediately after the deal has closed. Work with your broker, if you’re using one, and your attorney and accountant to confirm all the necessary details for a smooth closing.
Schedule your closing meeting, preferably in the morning during business hours, and when all parties are available. It’s important to schedule a time when banks or government offices are open in case you need to reach them. It’s also helpful to schedule the meeting at the end of the quarter, month or pay period in order to simplify preparation of monthly expenses that transfer with the sale.
Documents the owner needs to prepare for the closing meeting:
- Final purchase price to reflect the outcome of price negotiations; prorated rent, utility and other fees; final inventory value; final accounts receivable and accounts payable.
- Purchase and sale agreement. The owner will need to work with their broker, attorney and accountant to create this document.
- Bill of sale. This proves the sale of the business. It also explicitly transfers ownership of tangible business assets not specifically transferred on their own.
- Closing or settlement sheet. This should list the purchase price, plus costs and price adjustments to be paid by or credit to the seller and buyer. Unless the sale is closing through an escrow agent, an attorney will prepare this.
- Corporate documents if the business is structured as a corporation or LLC, the owner will need to work with their attorney to pass a corporate resolution that authorizes the sale. If the business is a sole proprietorship, it will close automatically following the sale and once the owner ceases operations of the business entity.
- Government and tax forms may be required by the Secretary of State or Corporations Commission. The owner will also need DMV transfer documents for vehicles included in the sale, as well as documents to transfer intellectual property. IRS Form 8594 needs to be completed to show an identical allocation of purchase price.
- Succession agreements. This would be for employee benefit plans, including flexible spending, profit sharing, etc.
- Insurance requirements need to be confirmed, which are outlined in the purchase and sale agreement.
- Furniture and equipment sale list. The owner should include anything that is still under lease and prepare a list of assets excluded from the sale.
- Contracts and Agreements. The owner should take the steps necessary to transfer all assets and obligations. The owner should also assemble all titles and leases.
- Accounts payable and receivable. These documents should also include aging reports.
- Loan documents. This includes promissory notes, security agreements and a UCC financing statement to be filed with the state.
- Building lease agreement. This includes copies of all building leases and amendments. The owner should also prepare lease assignment and assignment acceptance document.
- Personal agreements. This would include any consulting or management agreement and covenant not to compete, if any.
- Exceptions to warranties and representations, if any.
- Work in progress to be transferred.
Finalize the Deal in the Closing Meeting
The closing meeting should be attended by the owner and any other owners of the business; the buyer(s); any third-party loan guarantors (if any) unless they previously signed personal guarantees or provided powers of attorney to the in attendance; the owner's attorney and the buyer’s attorney; the escrow agent (if any); the broker and others whose signatures will be required.
The closing meeting is primarily a time to review and sign all the necessary documents to complete the transaction. The primary documents include:
- Purchase and sale agreement and bill of sale
- Lease transfers
- Vehicle transfers
- Other documents involving the transfer of business assets
- Seller’s consulting, employee, and/or non-competition agreements
- Articles of amendment to change the name of the business
- Transfer of patents, trademarks and other intellectual property
- Closing and settlement sheet
- Asset acquisition statement and IRS Form 8594
- Buyer’s payment for the purchase price
Post-closing Transition of the Business
The business has now been passed on to the new owner, but before the former owner moves on to the next phase in their life, they must close the loop on a few actions to transition the business operations to the buyer. The former owner's attorney and broker will assist in this final post-closing process.
Turn over all items to assume business operations:
- Alarm codes
- Computer, software and online access codes and passwords
- Safe combinations
- Client list
- Supplier, vendor and distributor lists
- Keys to building, vehicles and file cabinets
- Equipment operating manuals
- Your personal contact information
Dissolve the business entity:
- Meet with board members, partners to pass resolution to dissolve business
- Notify IRS, using form 966
- File articles of dissolution with state where business was formed
Complete forms and actions to cease operations of the business entity:
- Notify contacts for all contracts assigned or assumed by buyer
- Notify creditors to explain how bills will be paid (by your or new buyer)
- Cancel business permits or licenses, assumed business names and other registrations
- Give cancellation notice on your lease (if its transferred to the new buyer)
- Cancel insurance policies not being assumed by new buyer
- Pay bills off and collect accounts receivable not being assumed by buyer
- Distribute assets remaining in your business after the sale closing
- Close your employer ID number with the IRS
- Close business line of credit
- Pay final wages to employees, plus payroll taxes and fees
- File necessary tax forms using the IRS “Closing a Business Checklist”.
At this point the deal is complete! The new owner can now notify the employees and make an announcement to to customers, suppliers and the general public. Congratulations!
Next Step: Connect with a Business Broker
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