Every business is going to have its own particular set of documents that it’s going to need at closing. But there are a few that need to be on everyone’s checklist and a couple that often get forgotten or don’t get due consideration. In this article we’ll share those items and what you should know about them.
But before we get to them, you have to realize that a closing date is an expression of intent. It’s not a guarantee. There are things that both buyer and seller can do to move that date around. Whether you’re a buyer or a seller, you don’t want your actions to be the reason a transaction is held up. Make sure these items are handled so that closing can happen as scheduled.
Work in Progress (WIP)
The reality is that sellers are going to be delivering goods and services to your customers right up until and beyond the moment of the transaction. Both buyers and sellers will want there to be as little interruption as possible to normal business operations. This means creating a document of work in progress and figuring out how that WIP is incorporated into the sale price.
For example, if you have taken in work that the seller has already received payment for, but the employees or contractors will not complete (or get paid for) until after the sale, you have to work out who is going to pay. Will the seller make separate payments to those employees and contractors for that WIP, or will it be deducted from the sale price, leaving the new owner to take care of it? That’s one way of looking at it, and there’s no “correct” answer, but it’s not something you want to leave to the last moment.
We can’t tell you how often business transactions have been held up (or blown up) because of failure to deal with a lease issue. If you have a lease, you need to make sure long before closing that a new lease can be contracted with the buyer or that the seller can pass on the lease.
This is an example of an item that is out of both the buyer and the seller’s control, so the more time that is allowed to deal with this, the better.
The buyer is often going to need to create a new business entity and once he/she has that EIN, will need it to open business bank accounts and credit card merchant accounts. That shiny new bank account will also be a good place for the buyer to drop in some working capital.
We’ve also mentioned the need for buyers to make sure they have the proper licensing with the appropriate authorities in order to have a seamless transition. Often a new entity will be needed to obtain those licenses.
You need to keep lips zipped when it comes to a business transaction (if you don’t believe us we shared some recent stories on our podcast). Ideally most (if not all) of your employees should find out about the transaction on the day it closes.
How the meeting goes and what is covered is something for buyer and seller to work out, but the three feelings your employees should have coming out of the meeting are:
- Security: they aren’t getting fired.
- Positivity: this is a good thing.
- Optimistic: there are some exciting possibilities ahead.
Find ways to give your employees these feelings at the meeting, and you’ll have succeeded.
This might seem like the most obvious item, but there’s a logic to when this meeting occurs as well. Things to consider:
- Make the closing for the morning so that the parties can go to banks or government offices afterwards.
- Scheduling the closing at the end of a quarter, month, or pay period to simplify calculations. Bottom line – close when all parties are able to do so. Any day will work.
We’re here to make your closings simple. Give us a call to see how we can help you with your next business transaction.