Closing Was Friday. Could the Buyer Run the Business on Monday?

 Imagine you’re buying a profitable business. It’s Wednesday, the signature pages for closing are circulating, and the wire is set for Friday.

 You signed the asset purchase agreement before you started diligence. The seller was a competitor and wanted a signed deal before opening up the business to you. You understood the concern. You also wanted the deal to move.

 Now, on a walkthrough, an operator on your diligence team stops at a room in the back.

 “When did you start running production in here?”

 “A few years ago. We needed the space.”

 “Can we see what the city approved?”

 The seller has a current business license. Customers are paying. Your team still needs to find out whether the city approved production in that room and whether you can keep using it after closing.

 You priced the business assuming it could fill orders at its current pace. Now there’s a question nobody had put on the closing checklist.

If that room is unavailable on Monday, which orders can still go out?

Ask the question while there’s time to use the answer

 This is why I want someone on the diligence team who knows how the business runs. An experienced operator can spot the room everyone else walked past and tell you which orders depend on it. The accountant can work out what it costs to move production, delay it or lose it. Your lawyer can work with the seller to find out what the city approved and what you need in place to take over.

 Get those people talking early. If the operator spots the issue on Wednesday and the lawyer hears about it on Thursday, you’ve lost a day you may need to get an answer from the city. If the city needs two weeks, the closing calendar has to account for that. SBA guidance on business locations, licenses and permits

The deal can get ahead of the diligence

 A competitor has good reason to be careful about sharing customer names, pricing and margins. Have counsel work out what can be reviewed early and who can see the sensitive material. You may be able to start with a site visit, permit records and aggregated financials. Get clear on what will be delivered and when your review period starts. FTC guidance on diligence between competitors

 And watch the first piece of paper. Sometimes it’s the purchase agreement. Sometimes it’s a short form you’re told will get you to the purchase agreement. Before you sign either, ask your lawyer what takes effect immediately and what options you have if the facts change.

 Ten days goes fast when you spend the first four getting records. A separate attorney-review period can run out before the walkthrough even happens. Know when each clock starts, what you have to do before it expires and what happens if the seller delivers something late. Give your team the time the work requires.

 Back to Wednesday. You can ask for more time, a lower price or stronger protection. The seller can say no. Then your options depend on the agreement you signed before anyone asked about the room.

Put what you learn into the deal

 Suppose your team confirms the room needs a final inspection. What you do next depends on what the business can do in the meantime.

If you need the room on day one, make the sign-off a closing condition. Say exactly what the seller must deliver and what happens if it’s late. A reimbursement check six months from now won’t fill Monday’s orders.

If you can keep operating while the issue gets fixed, decide who pays. Ask for specific seller representations about permits, approved uses and outstanding notices. If the seller discloses the missing sign-off, address it directly. A specific indemnity can say which costs the seller will cover and whether the usual cap, claim threshold or deadline applies.

If the seller agrees to pay, decide where the money comes from. A holdback or funded escrow can put part of the purchase price behind that promise. Size it against the cost you’re trying to cover. Say what releases it and what happens if a claim is still open on the release date. SEC-filed purchase agreement with a purchase-price escrow

 If the business will permanently lose that capacity, go back to the price. What would you pay for the business at the volume it can actually deliver?

 If you’re buying your first business, get your team together before you sign. Ask them to name one thing the business can’t afford to stop, what evidence proves you can keep doing it, and how long it will take to get that answer. Do what you can up front. If some diligence has to happen after signing, secure the access, time and rights you’ll need to act on what you find.

 You want the answer about that room while you can still change the deal.

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 Have a deal in front of you? Schedule a call with Tolbert Legal to discuss diligence, deal structure, or the purchase agreement.

For general information only. This is not legal, tax, accounting, or investment advice.