Phases of Business Sale Closing: LOI and Due Diligence

There are a few important parts of a typical business sale, and one of the most important as you're nearing a final agreement is known as closing. Closing itself, however, also contains a number of typical phases that are generally covered to ensure that all parties are protected and have their interests met.

At Utah Business Consultants, we're here to assist Salt Lake City and other Utah clients with every stage of a business sale process, from exit planning and business valuation to important elements of closing and more. In this two-part blog series, we'll discuss the typical stages of closing a business sale, plus what to think about during each of them and how our team will assist you.

phases business sale closingHow is "Closing" Defined in Business Sales?

Before we get into the different phases of closing, let's define it. Closing is the process by which a business sale is officially finalized and executed. It involves both parties signing papers to make the transaction official in accordance with state laws and regulations, as well as any other documents needed for a complete transfer of ownership.

Some people define the "beginning" of the closing period somewhat differently, but generally we like to think of it as starting when both parties agree on the final terms and conditions of the contract. At this point, there might still need to be some negotiating, but the basic structure is in place and ready for signatures.

Our next several sections, and on into part two of our series, will look into the important stages to be aware of here.

Letter of Intent

Sometimes simply abbreviated LOI because of how common a term it is within the business sales world, a letter of intent is one of the first documents you'll encounter in closing. This document outlines the terms and conditions that have been agreed upon by both parties and acts as a sort of "promise" between them.

It's important to remember that while some LOIs are legally binding, many are not – and the extent to which it is legally binding should be made clear in the document itself.

Due Diligence

Another major element of closing is due diligence. This process involves both parties doing research into the other to make sure that all elements are in order and that no surprises or discrepancies exist with regards to the other's performance, financials, management style and more.

For buyers, this might include reviews of sales reports, taxes, financial statements and other related documents; for sellers, it can involve visits to the premises and background checks of potential buyers. No matter which side you're on, due diligence is an important part of closing and should be taken seriously.

In part two of this series, we'll continue our discussion of closing a business sale and look into the other aspects to be aware of. And for more on any of our business sale or business valuation services, speak to our team at Utah Business Consultants today.

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