From The Offer Stage Through The Close Of Escrow Stage
We thought it be helpful to discuss the various stages of the selling process as eventually most of you will be selling your business some day. In this edition we will cover the following topics:
1) receiving the offer,
2) responding to the offer,
3) acceptance of the offer, and
4) removal of contingencies.
1. Receiving the Offer – Once a business has been listed and marketed and a buyer is interested in acquiring the business we will write up an Asset Purchase Agreement Contract which the buyer will sign to be accompanied with an initial deposit check.. The Asset Purchase Contract spells out the terms and conditions of the sale and contains an expiration date.
2. Responding to the Offer – Upon receipt of the offer the seller has three options: 1) he can accept the offer by signing the contract, 2) he can write a counter offer changing the terms of the offer or 3) he can reject the offer by not responding to the offer. Once the seller receives the offer he will have a designated time spelled out in the contract to respond. If he doesn’t respond in the designated time the offer will terminate and any subsequent response will be considered a counter offer.
3. Acceptance of the Offer – Once the offer has been accepted by the seller the broker deposits the initial deposit check into escrow and the buyer has normally ten days or more to remove the contingencies described below.
4. Removal of Contingencies – Conditions need to be satisfied by the buyer before he increases his deposit to normally ten percent of the sales price and the actual escrow process begins. The standard contingencies include the following: 1) review of the businesses books and records, 2) physical inspection of the premises and 3) the landlords approval of assignment of the existing lease, modifying the existing lease or negotiating a new lease with the buyer. In some cases the transfer of special licenses such as ABC (Department of Alcoholic Beverage Control) license, entertainment license or approval of the franchisor (if a franchise) are required as additional contingencies. In some cases there may be a financing contingency where the buyer has a certain time to acquire necessary third party financing.
In our next edition we will cover the remaining steps necessary to close escrow which include: 1) the escrow process, 2) obtaining licenses and setting up tax accounts, etc, 3) transferring licenses, 4) taking inventory and 5) closing escrow. We will be happy to review the above process in greater depth with any one so please call us for further details on the eight step selling process.