03 Jan The Four Stages of a Closing
This article marks Glen Cooper’s seventh and final part in his webinar series the “Nuts and Bolts of Selling a Business.” 2022 also marks Cooper’s 44th year as a business broker. In this article, we’ll recap some of the Glen Cooper’s most important thoughts for what business brokers and M&A advisors need to know to ensure that they have a successful practice. There are many “deal killers” that can get in the way of achieving success and Cooper reveals how to avoid them.
What are the Stages?
Cooper notes that there are four stages of a closing. Understanding these stages will streamline the process and help ensure success. The four stages of closing are: Letter of Intent (LOI) drafting and acceptance period, due diligence period, financing approval period and the agreement drafting period. It is important to note that the financing approval period is typically seen as the lender’s responsibility, and the agreement drafting period is seen as the attorney’s responsibility.
The Letter of Intent
The letter of intent is one of your key responsibilities. As you likely know, the letter of intent should include the price, terms, time frame anticipated as well as other factors, such as the seller’s transition and training. Elements such as what is included and what is not including should be addressed.
Due Diligence
Another stage of closing that business brokers must pay special attention to is due diligence. Mr. Cooper emphasizes that for due diligence it is necessary to do one’s “homework upfront.” That means all important facts and documentation should be evaluated, ranging from tax returns and internal P&Ls to leases, bank statements, and customer/employee lists.
He also emphasizes that there are other areas of due diligence that should not be overlooked including the very important NDA, financial statements, credit reports and other factors. If you want to have a smooth closing (which clearly you do!), you will want to wisely invest your time in due diligence.
Financing Approval
There are many steps that you can take to help in the realm of financing approval. Some savvy steps are recommending local SBA lenders when possible as well as offering to review any business plan that goes to a lender. Be sure to stay in contact with the buyer during but refrain from direct contact with the lender.
Agreement Drafting
The final agreement drafting period must be taken seriously. You will want to provide a variety of important information to your client’s attorney. This information includes information on your brokerage agency, copy of the offering summary, and copy of the exclusive right to sell agreement. It is critical that you make yourself available and provide a written note offering to help if needed without creating billable hours. The bottom line is that at this stage, you should be available to assist without becoming a nuisance or interfering with the process in any fashion.
In our next article, we’ll explore Cooper’s recap of what has been covered in his seven-part webinar. As you will learn, a tremendous amount of useful and actionable information has been covered in detail.
