Buying a business is no small deal. In fact, the details matter quite a lot, and it’s important the transaction goes smoothly so that you can move forward with your new venture worry-free. Remember that when you’re buying a business, what you’re really buying is their assets. This may include equipment, leases, mailing lists, and intellectual property like the recipes used in a restaurant.
How can you ensure the seller will give you all their manufacturing and marketing data? How can you know that the buyer will pay the full agreed upon price? You need to know the deal will go as planned. Just believing a person’s word is not enough, and it’s certainly not fool-proof.
How Does an Escrow Service Help?
An escrow service is a third party service that works between a buyer and a seller so that a controlled transfer of ownership and payment can be made. What the escrow process does is collects payment in full, so that the seller can be assured of complete payment, and then holds it until all terms of the deal have been met. This can mean all equipment and information delivered, all keys handed over, all alarm codes and passwords changed to new ones that the new owners know. Once this is all complete, the seller in paid in full. In this way both parties are assured that they receive everything they were promised.
Without Business Escrow Services, What Can Happen?
Without third party supervision, a buyer can claim they didn’t get what they paid for. Some claim that the deal included more assets than are documented, that they have paid in full when they haven’t, or that the agreed upon price had been lower. Sellers can claim that they haven’t received any payment, only received partial payment. Also that they delivered goods that were not delivered, or that the agreed upon sales price had been higher. Disagreements come up about whether specific assets were part of the deal, or one party refuses to adhere to agreed upon terms.
It would just be one person’s word against another. Escrow prevents this mess by being a participant, witness, and record keeper throughout the process. With an escrow company, there is a reputable business providing needed security, like a bridge of trust between both parties, even when no such trust exists.
How is Escrow Paid For?
Escrow providers receive fees for their services. The expense typically divided between the buyer and seller.
If you’re thinking of buying or selling a company, contact us today. Ask about how Bay Area Escrow can ensure your transaction goes as planned.