FAQs – The Purchase Process

Yes. Bulk sale escrows are required for every business transfer that has an account with a government tax agency or transfers any furniture, fixtures, and equipment (FF&E). Escrow holders obtain state and county tax agency releases as well as run UCC searches to ensure there are no outstanding debts or liens on the business. Escrow holders coordinate the publication of notices of the sale to meet local and state laws and notify them that the current owner of the assets is selling them. If creditors are owed money, they’ll have their opportunity to get it from the Seller through escrow before the sale closes.

We recommend escrow for every asset sale without exception. Escrow officers are trained and experienced in the bulk sale process. Buyers and Sellers expose themselves to substantial additional risk and liability when they attempt to bypass escrow; it's simply not worth it.

Take a look at our escrow FAQs for more answers. 

This varies widely by geography (county and city), acquisition type (asset vs. stock sale), license type, and industry. It really must be answered on a case-by-case basis, but an experienced Agent can help you navigate the process of applying for and transferring all required licenses related to the sale.

Escrow ensures that Buyers own their assets free and clear after the sale; that is one of the most important reasons every sale requires an escrow.

At the point that you feel it's beneficial to do so. We always recommend you seek the advice of trusted professional advisors during your search and purchase of a business.

Licensing requirements vary widely between businesses. Some license types require personal qualification, such as contractor’s licenses, liquor licenses (a.k.a. ABC licensing), or professional certifications. The Seller and the Agent can help determine a business’s licensing requirements during the purchase process.

The term Asset Sale has two different meanings in the business brokerage world.

Businesses are considered Asset Sales when they include the business’s physical assets without the usual additional intangibles: name, menu, customer lists, etc. You’ll generally encounter these when the business is underperforming, and we expect the Buyer to change the use or concept. This is common among Food and Restaurant businesses. BottomLine notes this in our information packages.

Asset Sales can also refer to the technical method of business purchase. The Seller retains possession of the legal entity and the Buyer purchases the individual assets of the company, such as equipment, fixtures, leaseholds, licenses, goodwill, trade secrets, trade names, telephone numbers, and inventory. Asset sales generally do not include the cash and the Seller typically retains any long-term debt obligations. Sellers typically retire the legal entity after completion of the sale. Over 90% of small business transactions are asset sales.

An asset sale is the purchase of the individual assets of a business, whereas a stock sale is the purchase of the owning entity (the shares) of the business. While there are many factors to consider when selecting a transaction type, potential liability and tax implications are generally the primary concerns.

In an asset sale, the Seller retains possession of the legal entity and the Buyer purchases only the individual assets of the company, such as equipment, fixtures, leaseholds, licenses, goodwill, trade secrets, trade names, domain names, telephone numbers, and inventory. Asset sales generally do not include the cash or accounts receivable and the Seller typically retains any long-term debt obligations. Sellers typically dissolve the legal entity after completion of the sale.

In a stock sale, the Buyer purchases the Seller’s stock, thereby obtaining ownership of the legal entity and the assets it owns.  The actual assets acquired in a stock sale tend to be the same as those acquired in an asset sale. Assets and liabilities that aren't part of the transaction are often distributed or paid off prior to the sale. Unlike an asset sale, stock sales do not require bulk transfers of assets, because the title of each asset lies with the acquired company.

Contingencies are conditions of a business purchase that cannot be guaranteed to occur at the time an offer is accepted, but must be completed for an escrow to close. Contingencies are a part of almost every business purchase. The four most common contingencies are:

1. Due Diligence - This is the process where a Buyer verifies the financial records of the business and reviews any other supporting documents. This is the Buyer’s opportunity to confirm the authenticity of the business and answer any outstanding questions about its' operations. Completing due diligence to a Buyer's satisfaction typically occurs prior to entering escrow.
2. Lease - For businesses with a lease, the purchase is typically contingent upon the Landlord approving both the Buyer's tenancy and use of the space. The Landlord will then agree to either assign the Seller's existing lease or negotiate a new lease with the Buyer. Each Landlord has their own process to qualify a Buyer.
3. Financing - When financing is required to complete a purchase, the deal is usually contingent on the Buyer obtaining sufficient funding on satisfactory terms.
4. Franchisor - Franchise businesses require the franchisor to approve the Buyer before a sale can be completed. Each franchisor has their own process to qualify a Buyer.

Lease, financing, and franchisor contingencies generally continue into escrow. They occur simultaneously because each can be a lengthy process, ranging from 30 to 90 days. By the end of escrow, all contingencies must be completed for the deal to close.