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As the old adage goes, “anyone who acts as their own attorney has a fool for a client.”  The same is true when looking to buy or sell a business.  If you’re a buyer, you should certainly do your homework by researching what sort of company to purchase.  If you’re a seller, there is nothing wrong with using all sorts of self-help tools to find a willing buyer.  But the actual transaction will go much more smoothly if you engage the services of an escrow company or business escrow broker.

What is Escrow?
In a financial transaction, a trusted third party acts as the middleman between buyer and seller, holding all funds “in escrow.”  When you buy a home, for example, the down payment stays in a secure account until all the paperwork is completed.  When hiring an attorney, the money deposited with the firm remains separate from their operating capital until the hours have been billed to your account.

Escrow Officers and Escrow Companies
At the time of closing, when a buyer and a seller come together to complete a deal, an escrow officer makes sure that all the paperwork is in place and that everything is transferred according to law and the terms of the purchase agreement.  A number of companies specialize in performing escrow functions specifically for people buying and selling businesses, which are oftentimes much more complicated transactions than simply selling a piece of real estate—even though actual property, such as a building or raw land, could also be part of the business deal.

Buying or Selling a Business via Escrow
Although laws differ from one state to another regarding what is required when buying or selling a business, one thing remains constant—the paperwork can be overwhelming.  Escrow services are experts in conducting the sale of businesses and know exactly what needs to be done, and when, by both contractual parties.  It is customary for both sides to place “earnest” money on deposit to show that they are serious about completing the deal.

Terms of an Agreement
A business escrow service (broker) helps the buyer understand exactly what is included in the purchase.  Full disclosure is an important part of the process.  There is usually a list of all real estate, equipment, and other tangible assets to be transferred, plus copies of any existing leases or payment plans.  Profit-and-loss statements from the previous three years of business are usually included, as are tax returns.  If a patent, license or other contract of value is part of the business, that material is also part of the escrow package.

For the seller, an escrow broker will examine the financial health of prospective buyers and create a profile of each legitimate suitor.  This allows the seller to make a highly informed decision as to the best party to whom the business should be sold.  The seller’s broker will field all offers and act as an advisor, helping to negotiate a fair selling price.  For the buyer, an escrow broker will help determine the best terms under which the business can be purchased and will also serve as the primary carrier of that offer to the seller.  Another part of the service includes seeking out tax liens, judgments or other factors that could negatively affect the value of the business that is being sold.

Wrapping Up a Deal
As the sale of a business approaches completion, the paperwork continues to mount.  Included among the items that could be required to close a deal are the following:
· Bank account details and the changes of authorized signatures
· Complete inventory lists
· Stock certificate transfers
· Certified payment records of sales, employment, and other taxes
· Name changes in licenses or other business operations documents

Conclusion
The best business transactions are a win-win for both buyer and seller, where each party gets a fair deal.  By using an experienced escrow service or broker to look after your interests—whether buying or selling—you ensure the best possible outcome and the fewest number of headaches.