What Not To Do During Escrow

Fear not, fellow California entrepreneurs! I'm Andrew Rogerson, an M&A-certified broker and advisor with over 17 years of experience guiding lower middle market pioneers like you through the California M&A labyrinth, especially in industries like:

• Manufacturing,
• construction,
• trucking & logistics
• industrial services,
• business services,
• healthcare,
• and managed IT service providers.

I've seen it all:

• Deals derailed by missing permits,
• escrow agreements morphing into legal quagmires,
• and sellers left bewildered by labyrinthine paperwork.

But today, we're focusing on the heart of this bureaucratic beast: paperwork delays. A staggering 42% of lower middle market M&A deals in California experience escrow delays, according to a recent study by the California Business Brokers Association. That's nearly half your dreams put on hold, your retirement fund gathering dust instead of fueling beachside margaritas.

A whopping 73% of California retiring business owners cite escrow delays as their biggest fear, according to a separate survey. You're not alone in this, my fellow entrepreneur!

So, how do you avoid this paper-strewn purgatory?

Let's pull back the curtain on some common escrow traps and equip you with the knowledge to navigate this bureaucratic beast with confidence:

Trap 1: The Permitless Pitfall

Picture this: you're on the cusp of closing, buyer happy, paperwork pristine... but then, bam! A surprise inspection reveals a missing fire permit. Suddenly, your deal is on hold, weeks (or even months) lost while you scramble for paperwork older than your children. The emotional and financial strain can be crippling.

Solution: Proactive due diligence is your mantra. Before even listing your business, have your property, especially commercial locations, meticulously inspected and ensure all permits are in order. Think of it as an emotional and financial firewall; a small upfront investment that can save you from future delays and heartbreak.

Trap 2: The Tax Time Terror 

You meticulously filed your taxes, right? Wrong! Hidden tax liens or unpaid payroll withholdings can lurk in the shadows, waiting to ambush your escrow process. I remember this deal, a manufacturing business owner who thought he was closing escrow within weeks, only to be blindsided by a $50,000 unpaid sales tax bill from years ago? His deal screeched to a halt, his retirement dreams put on hold while he navigated the California tax labyrinth.

See more of documented successful case studies of deals done right.

Solution: Transparency is key. Be upfront with your potential buyer and proactively disclose any potential tax liabilities. Remember, honesty is the best policy, especially when it comes to California's labyrinthine tax code. Consider involving a tax advisor experienced in M&A deals to ensure thorough due diligence and avoid last-minute surprises.

Trap 3: The Lease Labyrinth 

Your business operates from a prime location, a cornerstone of your sale. But wait, the lease expires six months after closing! Guess what? Your buyer just walked. Just like another business owner, who thought she had the perfect buyer for her successful healthcare service business, only to learn their expansion plans hinged on a long-term lease extension that the landlord refused.

Solution: Know your lease agreement inside and out. Negotiate extension options in advance or consider selling your business and the lease together to ensure a smooth transition. Remember, flexibility is your friend in the ever-changing landscape of California commercial real estate.

Trap 4: The Legal Landmine 

You thought you had a solid escrow agreement, right? Wrong! Hidden clauses, ambiguous terms, and unforeseen contingencies can turn your agreement into a legal landmine. I remember one business owner, who thought he had secured a watertight deal for his construction company, only to find himself embroiled in a legal battle with the buyer over environmental cleanup costs vaguely mentioned in the escrow agreement.

Solution: Seek expert legal counsel. Don't rely on boilerplate agreements or DIY tactics. An experienced M&A attorney can review your agreement, negotiate key terms, and protect your interests every step of the way. Think of them as your legal shield, deflecting hidden clauses and unforeseen threats.

Beyond the Traps: Optimizing Your Escrow Journey

Escaping these traps is only half the battle. To truly conquer the California escrow M&A, you need to optimize your entire journey.

Here are some essential strategies:

1. Assemble Your Dream Team: 

Surround yourself with experienced professionals. Enlist an M&A broker well-versed in lower middle market deals, a skilled M&A attorney, and a tax advisor familiar with the complexities of business sales. These experts will be your navigators, guiding you through the twists and turns of the escrow maze.

2. Communication is King: 

Open and transparent communication with your buyer, escrow agent, and legal team is crucial. Regularly update everyone involved, proactively address potential issues, and keep the lines of communication open. Remember, information is power, and a well-informed team can anticipate and overcome challenges before they derail your progress.

3. Embrace Flexibility: 

Unexpected obstacles are inevitable. Be prepared to adapt, negotiate, and find creative solutions. Think of yourself as a skilled diplomat, navigating shifting priorities and finding win-win situations for everyone involved.

4. Manage Expectations: 

Remember, California escrow is a marathon, not a sprint. Set realistic timelines and manage your expectations for the entire process. Accept that there will be delays and bumps along the road, and focus on maintaining your emotional resilience throughout the journey.

5. Celebrate the Victories: 

Don't get bogged down in the paperwork and deadlines. Take the time to celebrate every milestone, however small. Acknowledge your progress, reward yourself for your accomplishments, and keep your eyes on the ultimate prize: your golden exit and a sun-drenched future.

Final Take: Selling Your Commercial Property With An Operating Business

Remember, conquering California escrow is not just about surviving paperwork and deadlines. It's about taking control of your exit strategy, securing your financial future, and paving the way for a well-deserved retirement. With these tips, the right team of professionals, and a healthy dose of resilience, you can transform your escrow journey from a nightmare to an empowering, rewarding experience.

Don't let California escrow become your retirement roadblock. Contact me today for a free inquiry and let's navigate this adventure together. Your Californian dream awaits!

Disclaimer: While Rogerson Business Services doesn't offer escrow services directly, we partner with the trusted team at Glen Oaks Escrow, led by the highly experienced Cynthia Moller. We understand the intricacies of business with real estate transactions and are here to guide you through every step of the escrow process.

If you are a retiring business owner looking to exit your lower middle market business in California, here are six tips to get you started:

1. Don't wait until the last minute to start planning your exit. The process of selling a lower-middle market business can take a long time, so it's important to start early.

2. Have a clear idea of what you want to get out of the sale. Know your goals and what you're willing to negotiate.

3. Know what's your company's worth. This is an essential step to take when planning to sell your service business company in California.

4. Choose the right type of buyer. Not all buyers are created equal, so do your research and find the right one for your business.

5. Be prepared for a lot of due diligence. M&A buy-side due diligence is when buyers will want to know everything about your business, so be ready to provide documentation and answer questions.

6. Be flexible with the terms and conditions of the deal. It's important to be open to negotiation to get the best possible deal for your business.

Rogerson Business Services, also known as, California's lower middle market business broker is a sell-side M&A advisory firm that has closed hundreds of lower middle-market deals in California. We are dedicated to helping our clients maximize value and achieve their desired outcomes. 

We have a deep understanding of the Californian market and an extensive network of buyers, which allows us to get the best possible price for our clients. We also provide comprehensive support throughout the entire process, from initial valuation to post-closing integration. 

Our hands-on approach and commitment to our client's success set us apart from other firms in the industry. If you consider selling your lower-middle market business, we would be honored to help you navigate the process and realize your goals.

If you have decided to value and then sell your lower middle market company or are still not ready, get started here, or call toll-free 1-844-414-9600 and leave a voice message with your question and get it answered within 24 hours. 

The deal team is spearheaded by Andrew Rogerson, Certified M&A Advisor, he will personally review and understand your pain point/s and prioritize your inquiry with Rogerson Business Services, RBS Advisors.

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