Business Escrow Service
So far, the business transfer process has been presented from both the seller’s and the buyer’s perspective. It should be already clear that transferring a business is a long, complex and energy-consuming process, for everyone involved. However, there are several ways to approach the complexity of this process, and, in our experience, the main ingredient of the recipe for success is the network of highly trained specialists, who can resolve the most complex and specific tasks in an effective and professional manner.
So, with a little effort and the help of a business broker and other professionals, the two main parties of the transaction will be well prepared to sell, respectively buy the business. However, up to this point, we are only on the preparation stage. The business is still owned by the seller, while the buyer waits for a final agreement and for the completion of the transfer process.
The next logical step is an evaluation or inspection of the business to be sold, performed by the prospective buyer, then reaching a final agreement on both sides. This stage is considered closed when the price and final terms have been successfully negotiated.
In the final phase of the business transfer, once the buyer has fulfilled the financial obligations, the transaction is ready to be closed. Although it seems pretty straight-forward, this is a highly complex and delicate stage, calling for the help of a specialized Escrow Agency, which functions as an intermediary between the two parties.
TradeX is an example of such an Escrow Agency, specialized in the business transfer of SMEs. It serves as a neutral holder of funds and documents, acts as a main communication bridge between the parties involved in the transfer and facilitates its closing. The Escrow Agent makes sure all regulations are properly followed, prepares the necessary paperwork and takes care of all administrative necessities for a successful transaction. The escrow services targeted towards business transfers protect both the buyer and the seller.
Escrow starts with a written agreement between the parties and TradeX. All instructions regarding terms and conditions for the escrow transaction are drawn up and enclosed in the final acquisition contract and its annexes. These guidelines are provided by both the seller and the buyer or by their representatives. Conversely, the business broker will make sure all paperwork is properly filled. Then, the final contract is signed by everyone involved, and the buyer makes a first deposit into the escrow account.
The two main objectives of an escrow agent when closing a business transfer are:
1. Assuring that all necessary conditions are met (as stated by the acquisition contract), for the business to continue working after the transfer is finalized.
- Transferring the contracts, client portfolio, suppliers, employees, etc.
- Obtaining the necessary authorizations and permits
- Transferring the rental agreements or real estate properties
- Other particular conditions, stipulated in the contract
2. Completing of the necessary payments as per instructions, including commissions and other financial rights.
Next, the financial registry for the distribution of the funds is elaborated, as it is a very complex document, which explains and keeps track of all down and remaining payments, from both the seller’s and the buyer’s side.
For these reasons, the seller will always see the negotiated price for a particular business as a series of added and subtracted amounts, depending on the particularities of the transaction.
The escrow account is closed when all instructions have been followed by all parties involved, as per the acquisition contract and its annexes.
Without a neutral escrow officer, able to ease the transfer process, selling and buying a business is a very risky endeavor. Unfortunately, in the absence of a well-established support network of professionals (business broker, escrow agency, financial and legal specialists), it is highly improbable for a business transfer to be finalized in an amiable and fair manner for both parties.