You’re Almost There…
At long last, your deal is absolutely, positively closing tomorrow! The culmination of your professional career is at hand. No more trying to coax pimple-faced teenagers to come into work. No more 400-pound customers returning a cold, but half eaten, hamburger. No more 105-year old lady parking her Buick LeSabre in the dining room or the delivery driver running over the drive thru sign for the third time this month. Soon, it will all be someone else’s problem. It’s time to ride off into the sunset, to lay on a white sandy beach and count your money. Not so fast, my friend. Unfortunately, it’s not quite that simple. While tomorrow will undoubtedly be a great day, there is still work to be done and risks to be managed.
What’s Left to Be Done?
Contractual Tail Liabilities. As ugly a concept as it sounds. The APA always mandates that the selling shareholder either fund an escrow, post a bond or provide personal guarantees from the shareholders to protect the Buyer from pre-closing liabilities. If you want to avoid post-closing headaches, like chasing down minority partners for their share of a residual claim, make darn sure you clean up as much as possible prior to close.
Statutory Tail Liabilities. Another real gem. Varies from state to state. Can be up to five years. The selling entity is required by law to stay active and maintain adequate reserves to cover any residual debts. Shareholders will be liable to the extent of any distribution they receive if the company is unable to pay its contractual obligations.
Residual Franchisor Liability. Most franchisors are pretty good about getting everything they are owed prior to allowing the franchise agreements to transfer, but most also have a nice little zinger an page 73 of their franchise agreement which states: “If the guy you sold to screws up in the first year after the sale, we are coming after you.”
Residual Lease Liability. Cry all you want, but you are never getting off that lease guarantee you signed.
Environmental Claims. Owning a restaurant property that was a former gas station is like stepping in gum. You’re never going to get it completely off.
Tail Liability Insurance. Very important to have and typically not that expensive. Call your insurance broker a month before the deal closes and get a couple of quotes.
Banker Don’t Abandon Me. If you hired the right investment banker, he won’t disappear the day he gets his check. If you didn’t, he will come out of hibernation on the closing day to collect his check and then go back into hibernation.
Keep the Help Around for a While. There is going to be an enormous amount of post-closing administrative clean up. Expect 60-90 days to get everything wrapped up. Please keep some admin support around for a couple of months to tie up loose ends.
Buyer Complaints. The Buyer is going to do a lot of post-close complaining. For the first 30-45 days, listen and if its legit,work out a quick settlement. After that, he is probably just a whiner.
Tax Returns. You are going to need to file a stub tax return the year after you sell so make sure your controller/CFO stays around long enough to get everything completely buttoned before they go. If he/she is going along with the deal, make sure you have an agreement with the buyer to be able to use their services for a while.
Accounting. Make sure you have clear and robust post-closing due from/due to language in the APA. Post-closing deposits are going to find their way into your credit card accounts. It always happens. Give them back (right away).
Vendors. Vendors are going to continue billing you. Keep good records and make sure you only pay what you owe.
Post-Closing Restrictions. Pay attention to the covenant not to compete. Very bad things can happen if you don’t. If you signed a non-solicitation or non-hire, don’t.
Former Employees. Expect lots of calls from your former employees complaining about how bad the new guy is unless of course you were a jerk to them, then expect to hear how much Better the new guy is to them than you were.
Re-investment Risk. Trying to figure out what to do with all the money that just got plopped into your checking account is what us bankers call ‘a high quality problem’ but it is a problem nonetheless, and hopefully, a very big one at that. Plan and be prepared.
The Tax Bill. The tax bill is going to be heartbreaking and soul crushing. Try not to dwell too much on it or it will drive you crazy.
Record Keeping. Keep all of your old paperwork for at least 100 years. If you were smart enough to have gotten it digitized, keep it for 1,000.
Being a Landlord. If you kept the properties you didn’t really sell, you ‘partnered up’. If you are your Buyer’s landlord, I hope you picked the right guy!
Seller Carry Back Note. “Neither a borrower nor lender be, for loan often loses both self and friend…” If you carried back a
note, you are more than likely unsecured and subordinated to his acquisition lender. I really hope you picked the right guy!
Congratulations, you sold your restaurant business, but always remember:
IT AIN’T OVER ‘TIL IT’S OVER.