You took the time to grow your business, nurture it, and now you’re prepared for the next step. Are you ready to sell your business? Before the sale, you’ll need to make sure you’re armed with as much knowledge as possible to protect your investment. One way of doing this is through a business escrow account.
The following is a review of why you need an escrow account when selling your business.
What Is a Business Escrow Account?
Selling a business has many steps– landlord negotiations, franchise agreements, and more. When a business is in the process of being sold, an escrow account is a neutral third-party used to handle the asset transfer between seller and buyer, much like buying a house. This third-party will hold the money until the transaction is complete.
A business escrow is beneficial for both the seller and the buyer. Here’s why…
It Verifies the Legitimacy of the Earnest Money
When selling a business, you wouldn’t just take someone’s word they can afford to buy. You want to verify funds are readily available so closing goes through as expected. An escrow account is proof that the earnest money exists and you’ll receive it if the sale meets all conditions. The buyer’s check will be held in an escrow account until either the transaction is closed or canceled.
It Ensures There Are No Liens Against the Seller
Before purchasing the business, the buyer needs to know that there are no liens against the business. If there are, they need to be paid by the seller prior to the transfer. An escrow company searches to make sure there are no liens against the business. This is one of the major benefits of an escrow account. If the buyer purchased a business by simply handing a check directly to the seller with no due diligence, down the line they could find out a lien had been recorded against the business. This would now fall on the new owner.
Escrow Requires Closing Funds In Advance
Prior to the closing date, the buyer’s funds must be deposited into the escrow account. This protects you as the seller, ensuring the buyer can’t issue a stop payment on the funds. You’ll be certain the money is there once the transaction is closed.
Don’t Do Business Without One
There are many benefits of having a business escrow account and most businesses won’t even consider selling without one. It’s always a good idea to have an escrow company hold the funds, legitimize the sale, and ensure both seller and buyer are in agreement.
Bay Area Escrow Services is here to help with all of your escrow needs. If you’re planning on selling your business, get in touch with us today.