The Closing: From Signed Purchase Agreement to Wire

Closing conditions

The purchase agreement lists the conditions each side must satisfy before closing. On the buyer's side, typically funding from the lender, landlord consent to the lease assignment or a new lease, transfer or issuance of required licenses, receipt of tax clearance certificates, and completion of any remaining diligence items. On the seller's side, delivery of the assets free of liens, execution of the ancillary documents, and the business being in materially the same condition as when the agreement was signed.

Each condition has an owner and a deadline. In a well-run closing, someone is tracking every one of them daily. In a poorly run closing, the parties discover on the scheduled closing date that the landlord's attorney has not returned the consent form.

Escrow

In California most asset sales close through a business escrow, which handles the bulk sale notice and its twelve-business-day waiting period, the creditor claims process, the UCC lien search and payoffs, the tax clearance requests to the CDTFA, EDD, and Franchise Tax Board, the proration of rent and expenses, the inventory adjustment, the lender's funding, and the disbursement. The escrow holder prepares a closing statement for each side showing every debit and credit.

Escrow opens as soon as the purchase agreement is signed, and sometimes at LOI so the tax clearance requests can start early. The bulk sale notice is recorded and published right away, because the waiting period cannot be shortened. Liens are identified and payoff demands ordered.

Lender funding

The SBA lender has its own closing checklist, which includes the executed purchase agreement, the lease assignment or new lease, evidence of the buyer's equity injection, insurance binders naming the lender, the seller note documents if there is one with the required standby agreement, the landlord's estoppel and often a landlord waiver giving the lender access to the collateral, entity documents for the buyer, and the SBA authorization. The lender funds into escrow, and escrow disburses at closing.

Lenders close on their timeline, and it is often the longest pole. The seller's contribution is responsiveness: updated financials when requested, the final inventory count, and signatures on the seller note documents the lender requires.

Lease assignment

The landlord's consent to assignment, or a new lease with the buyer, is a closing condition for the buyer and the lender. The landlord reviews the buyer's financial package, negotiates any changes, and signs. Landlords with property managers and outside counsel can take weeks. The request should go in as early as the buyer is willing, usually during diligence, and someone should be following up every few days.

The seller's personal guarantee on the existing lease is released at this point if the landlord agreed to release it. If the landlord did not agree, the seller needs to know that before signing the assignment.

License and permit transfers

Each license has its own process. A California liquor license transfer through ABC takes 60 to 90 days or more and requires its own escrow, so a restaurant or bar closing is scheduled around ABC approval. A contractor's license requires a qualifier change through the CSLB. Health permits are typically reissued to the new owner on inspection. Seller's permits for sales tax are closed by the seller and opened by the buyer. Professional licenses, DOT numbers, cannabis licenses, and others each have a procedure and a timeline. The list is built during preparation and worked during diligence so that closing is not waiting on a permit.

Employees

In an asset sale the seller's entity terminates the employees and the buyer's entity hires them, usually effective on the closing date. Final paychecks including accrued vacation are due from the seller under California law on the last day of employment. The buyer's offers of employment go out shortly before closing. Benefits, payroll systems, and workers compensation policies are set up in advance so the first payroll under the new owner runs on time.

Employees are typically told the day before or the day of closing, by the seller, with the buyer present. The message is prepared in advance and is short: the business has been sold, the new owner is here, your job continues, here is what changes and what does not.

The transition

The seller's transition period, thirty to ninety days of full-time involvement in most agreements, begins at closing. Introductions to customers and vendors, training on systems, handing over relationships. A written transition plan with a schedule keeps it from becoming open-ended. The consulting agreement, if there is one, begins when the transition period ends.

Closing day

Signatures are usually collected in the days before, with documents held in escrow. On the closing date, the lender funds, escrow confirms all conditions are met, the bulk sale waiting period has run, clearances are in or amounts withheld, the closing statement is approved by both sides, and escrow disburses. The seller's proceeds, less the escrow holdback if any, less liens and payoffs, less prorations, less fees, are wired to the seller's account. The seller receives the closing statement showing every line.

Accounts, utilities, merchant processing, software, domain names, phone numbers, and social media accounts transfer on the closing date according to a list prepared in advance, along with the keys, the passwords, and the alarm codes.

A closing checklist, condensed

Purchase agreement signed and delivered to escrow, the lender, and the landlord. Escrow opened, bulk sale notice recorded and published, clearance requests submitted, UCC search ordered. Lender's closing checklist received and each item assigned. Landlord consent or new lease requested with the buyer's financial package. License transfer applications filed. Insurance binders ordered by the buyer. Inventory count scheduled for the day before closing. Employee offer letters prepared by the buyer. Employee announcement drafted by the seller. Account transfer list prepared: utilities, merchant processing, software, phone, domain, social media, vendor accounts. Payoff demands ordered for every lien. Prorations calculated. Closing statement drafted and reviewed against the net sheet. Signatures scheduled. Funding date confirmed with the lender. Transition schedule agreed in writing.

Every item on that list has a date and a person. The checklist is reviewed twice a week between signing and closing, and any item that slips is escalated the same day.

The last week

Inventory is counted with both parties present and the adjustment is calculated. Final financials are delivered to the lender. The closing statement is finalized. Documents are signed, usually electronically, and held in escrow. The lender confirms funding for the closing date. The landlord's consent is in hand. The employee meeting is scheduled for the morning of closing. The seller confirms the wire instructions with the escrow officer by phone, on a number the seller already has, because wire fraud in business sales is common and the last week is when it happens.

After closing

The seller's transition period runs on the agreed schedule. The seller's entity files its final tax returns, closes its accounts, and winds down or continues for the seller's other purposes. The escrow holdback, if any, is released at the end of its period. The seller note payments begin when the standby period ends. The seller's CPA prepares the return for the year of sale with the Form 8594 allocation matching the buyer's. And the seller, in most cases, takes the first extended time off in years.

What goes wrong and how to prevent it

The landlord delays. Start early and follow up constantly. The tax clearance does not issue because of an unfiled return. Have filings current before listing. A lien appears that the seller forgot about. Run the UCC search during preparation. The lender needs one more document. Respond the same day. An employee quits when told. Tell key employees a little earlier, with retention agreements if needed. The buyer gets cold feet. Keep the business performing and keep the timeline short.

We manage the closing checklist from the day the purchase agreement is signed, with every condition assigned and dated, so the seller's job on closing day is to sign and receive the wire.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.