Transaction Closing



The Closing, together with the Negotiations, are probably the stages of a business deal that are the trickiest to manage. Once an offer has been accepted by the seller, gathering all the necessary information to close is extremely important.

In many cases the parties go to a closing attorney way to early in the process - before making sure that all the loose ends of the deal are tied up. This is why, one of the main objectives of a knowledgeable business intermediary is to manage the process and make sure that going to a closing is a natural next step rather than a surprise to the parties involved.

Removing of contingencies is one of the main goals of a due diligence period when moving towards a closing. In this regard, it is very important for an offer to contain only contingencies which are meaningful and actually can be waived in reality. The more a buyer already knows and understands the business, even prior to putting the offer, the better the chance of only including contingencies which are necessary.

A few other issues with Closing arise when a Buyer requires a so called Trial (Observation) period - specific time period in which a purchaser of a business can observe and document the day-to-day income flow. This is used when the income of the business is difficult to be verified based on the seller's records. Normally, it is assumed that prior to an observation period, all negotiations have been completed, and the closing is only subject to the income flow approval. While this can be a viable tactic for verifying income, it also has its shortcomings and is only used in limited and very specific types of business sales. Dealing with landlords and removing contingencies in regards to the lease is another important aspect in a successful closing. It is important that a lease contingency in a lease is reasonable and actually corresponds to the actual terms of the existing lease. It is important that the seller has already established contacts and prepared the landlord for the possibility of him/her selling the business and therefore assigning the lease. If a landlord has not been contacted and prepared previously, lease contingencies can be a real impediment to a successful closing.

Obviously, working capital, equipment and inventory are three other major aspects of concern when coming down to a business closing. The buyer wants to make sure that he/she will not owe anything on the equipment that has not been disclosed. This is why a search under the PPSA (Personal Property Securities Act) is necessary step in a due diligence process. The inventory suppliers' liabilities are a bit tricky to handle, however, a good transactional attorney, provided with all the necessary information, can guide a buyer and a seller through the process and assure that legal responsibilities for inventory payables are handled correctly.

While complicated and somewhat overwhelming, the closing process - when managed properly and executed in a timely manner - does not have to be the stumbling block it has proven to be time and time again when not handled properly. The use of an intermediary who is experienced and knows this process well is highly beneficial and increases significantly the chances of successful business transaction.