Once you and your business buyer negotiate the fine points of a deal, it’s time to schedule the sale closing. A few easy steps will help you lay out what you need to do in advance, during, and immediately following the big day.

Step 1. Prepare for Closing Day

Here’s a chart outlining pre-closing day tasks. Work with your broker, if you’re using one, and your attorney and accountant to confirm and take the steps necessary in your particular closing. Once each step is taken, review the closing-day materials with the buyer to ensure advance agreement for a smooth closing.

PRE-CLOSING DAY CHECKLIST

Schedule your closing when all parties are available and preferably during a morning hour so you can reach banks and government offices following the closing. Also, aim for the last day of the quarter, month or pay period to simplify proration of monthly expenses that transfer with the sale.

Finalize the purchase price to reflect the outcome of price negotiations; prorated rent, utility and other fees; final inventory value; final accounts receivable and accounts payable value.

Prepare corporate documents. If your business is structured as a corporation, work with your attorney to pass a corporate resolution authorizing the sale.

Prepare government and tax forms such as: Forms required by your Secretary of State or Corporations Commission; transfer documents for vehicles included in the sale; transfer documents for intellectual property; and IRS Form 8594, which you and the buyer need to complete showing an identical allocation of the purchase price.

Confirm insurance requirements detailed in the purchase and sale agreement.

Prepare furniture and equipment sale list, accompanied by a list of which, if any, are under lease. Also prepare a list of assets excluded from the sale based on buyer-seller negotiations.

Prepare to transfer contracts and agreements. Obtain approvals, assemble titles and leases, and take steps necessary to transfer all assets and obligations included in the sale.

List and prepare to transfer work in process.

Finalize list of accounts receivable and accounts payable, including aging reports.

Prepare loan documents including a promissory note; security agreements including buyer’s personal guarantee and personal guarantees from buyer’s spouse and third-party guarantor, if any; and a UCC financing statement to be filed with your state.

Prepare to transfer building lease. Assemble copies of lease and lease amendments; prepare lease assignment and assignment-acceptance documents.

Prepare personal agreements including consulting or management agreement and covenant not to compete, if any.

Prepare exceptions to warranties and representations, if any.

Prepare succession agreements for employee benefit plans including profit sharing, flexible spending or other plans.

Prepare the bill of sale.

Prepare the closing or settlement sheet, which lists the purchase price and all costs and price adjustments to be paid by or credited to the seller and buyer. Your attorney will prepare this sheet unless your sale is closing through an escrow agent, in which case it will be prepared by the escrow office.

Prepare the purchase and sale agreement.

Other, based on input from your sale advisors

Step 2. Schedule the Closing

If your sale will close in an escrow office:

  • The closing will follow the instructions provided when the escrow account was established.
  • The escrow officer will confirm that all obligations and contingencies listed in the letter of intent to purchase and in the escrow instructions have been addressed.
  • You and the buyer will sign closing documents.
  • The escrow agent will transfer funds and record the sale.

If your sale will close in an attorney’s office:

  • Your attorney, your buyer’s attorney, or both, will prepare and review the purchase and sale agreement.
  • Upon legal advice, you’ll address any outstanding obligations or contingencies.
  • You, your buyer, and the attorney who drew up the documents will meet to sign documents and transfer funds.

Step 3. Prepare and Review the Purchase and Sale Agreement

Your broker, if you’re using one, will likely provide a purchase and sale agreement form, or you can obtain one from a legal forms resource. Better yet, have your agreement drawn up by an attorney and – under any circumstances – have your attorney review the agreement before you sign it, since it contains descriptions of obligations that are regulated by rules that vary from state to state. 

Step 4. Finalize the Deal

On closing day, here’s what to expect:  

Here’s who will attend: You and any other owners of your business; your spouse and any spouses of other owners of your business (necessary if you live in a community property state); your buyer or buyers and their spouses (necessary if they live in a community property state); third-party loan guarantors (if any) unless they previously signed personal guarantees or provided powers of attorney to those in attendance; your attorney and possibly your buyer’s attorney; your escrow agent, if any; your broker, if you have one; and any others whose signatures will be required.  

During closing, you’ll likely take the following steps:

  • Agree to post-closing final adjustments to purchase price to account for prorated expenses and closing valuation of inventory and accounts receivable, usually finalized within 15 days of closing.
  • Review and sign the purchase and sale agreement.
  • Review and sign loan documents.
  • Review and sign lease-transfer documents, vehicle ownership-transfer documents, franchise documents, succession documents and other documents involved in transferring your business or its assets.
  • Review and sign seller’s consulting, employment, and/or non-competition agreements.
  • Review and sign the bill of sale.
  • Review and sign articles of amendment to change the name of your business, thereby freeing the name for use by the buyer. This step allows the buyer to amend the working name he or she has been using during the purchase process to the name being purchased as part of the sale.
  • Review and sign forms to transfer patents, trademarks, copyrights and other intellectual property assets.
  • Review and agree to the closing or settlement sheet listing all financial aspects of the sale including how expenses and credits are assigned to each party.
  • Review and agree to the Asset Acquisition Statement, IRS Form 8594, which you and the buyer must attach, showing the identical allocation, to your federal income tax return.
  • Receive the buyer’s payment for the purchase price in full or for a sizable down payment, depending on the payment terms you negotiated.

And, with that, your deal is done! But your involvement isn’t over. You still have to announce the sale and take care of long lists of details and legal actions necessary to formally transfer your business and ease its transition to its new owner.

In next week’s installment of “Selling Your Small Business” we’ll offer tips for that transition phase of your sale.

Editor’s Note: This article is the 23rd piece in a series taken from BizBuySell.com’s Guide to Selling Your Small Business. The guide is a comprehensive manual to help small business owners maximize their success when the day to sell arrives. Each Wednesday, Inc.com will publish a new section of the guide outlining BizBuySell.com’s best practices, from the initial planning stages of a sale all the way through negotiations and post-sale transition.