10 Jun Escrow and Buying a Business

Escrow is the process required to complete the sale of a business. An escrow company becomes the neutral party that prepares all the necessary documents, holds the monies and, when all of the stipulations in the parties’ agreement have been met … closes escrow. Close of escrow entails issuing the buyer the bill of sale for the business and disbursing funds to the seller.

When an offer is accepted and escrow is opened, this starts the due diligence period for the buyer. In most cases, this due diligence period is 17 days during which a buyer may acquire and review all of the documents associated with the business. In essence, the buyer is determining for himself that what is declared by the seller and what the buyer perceives about the business is true and acceptable. At any time during this due diligence period, a buyer may cancel and get his deposit back, minus any cancellation fee, including “out of pocket” expenses to date. To cancel escrow it normally requires the principals from both parties to sign a mutual cancellation.

It could be said the purpose for escrow is to insure the parties involved that the business transaction is conducted with ultimate transparency and that all agreed-upon terms are met.

This process may include:

Publishing a Bulk Sale Notice
State and County Title Search
Current Vendor’s Payables
Prorating of rents and security deposits

Escrow also handles all the required paperwork, i.e:
Preparing Escrow Instructions, clarifying the agreed-upon terms and timelines
Preparing Closing Statements
Preparing Notes, if required
Preparing Bill of Sale
ABC license transfer, if required

When all requirements have been satisfied, the escrow closes.

The escrow process is designed to smooth the transition of stepping into your new business and making sure that all the “i’s” are dotted and “t’s” crossed. It’s similar to what we at Hughes Properties strive to do for you when you are searching for that perfect new venture; that fresh start. Let us know if we can help you find that business and help you open escrow on your future.
Author Profile:

Robert Hughes is a commercial broker and president of Hughes Properties, Inc. in Palm Springs. An MBA from USC, Hughes has a wide variety of entrepreneurial experience with the personal ownership and sale of over sixteen businesses, including founder and publisher of Orange Coast Magazine. Additional business tips can be found at www.hughesproperties.com