I’ve used a lot of words on this site to teach a prospective seller how to sell a business and a buyer how to choose and buy a business.
With some effort and the help of a business broker and other specialists if needed, we will have the two parties ready to sell/buy the business. Up to this point, only the preparation of the two “camps” for the “final battle” has been achieved. The business in still in the seller’s property, and the buyer still has the money in his pocket.
So after this very important phase of preparation, comes the phase in which the two parties “get to know each other”‒ the inspection of the business by the buyer, its acceptance, the seller’s approval of the buyer, the stage being concluded with the negotiation of the price and the terms of the business transfer.
However, the buyer still has his pockets full of money, and the seller cannot go on a much-desired holiday around the world. Here comes the final phase, the third one, where the actual transfer of the business from the seller to the buyer and all necessary financial considerations from the buyer to the seller will be done. Although it seems super simple, this transfer is tremendously complex, and an escrow agency specialized in the business transfer is needed to act as a bridge between the two parties involved.
TradeX – Business Transfer within the Chamber of Commerce and Industry of Brasov, functions as an Escrow agency for small and medium-sized business transactions. It serves as a neutral holder of funds and documents, represents the communication link between the parties involved in the transaction, and facilitates the closing of the transaction. The escrow agent ensures compliance, prepares transaction documents and closure statements, and handles the necessary administrative details. Business escrow services protect both buyer’s and seller’s interests.
Escrow begins with a written agreement between buyer, seller, and TradeX. The support for the instructions, terms, and conditions of the escrow transaction are drafted and included in the sale/purchase agreement and its annexes. These instructions are provided by the seller and the buyer or their representatives. They will receive the forms they will need to complete from the business broker who represents them. The buyer and the seller will sign the sale/purchase agreement, and the buyer will make the necessary advance payment.
The two goals that an escrow agent must perform to close a business transfer transaction are:
- To check that all the necessary conditions (stipulated in the sale/purchase contract) for the business to continue to operate under the same conditions after the transfer to the buyer are met. This includes:
- transfer of contracts, clients, suppliers, employees, etc
- obtaining authorizations, approvals, attestations (as required)
- the transfer of the necessary real estate rental contracts
- other particular conditions for each business (stipulated in the instructions)
- Distribution of Authorized Funds of Instructions, including commissions and other financial rights:
- the financial centralizer for the distribution of funds is being developed;
- this centralizer is a complex document that regulates all payments made in advance by the seller and the payments to be made by the buyer after closing the business transfer;
- for these reasons, the negotiated price for a particular business will always be higher or lower in the end, depending on the particularities of the transaction.
The escrow account closes when all the buyer’s and seller’s instructions stipulated in the sale/ purchase contract and its attachments have been made.
Without a neutral escrow officer to help both parties in the transfer of a business, this process presents a lot of risks for both parties involved. It is unlikely that this transfer will end amicably and fairly for both parties.