The Attorney's Guide to Small Business Acquisition Closings

If you live in deals every day, none of this will be new — bookmark it for the associate who does not. If you are a generalist getting pulled into your first acquisition because a long-time client is finally buying (or selling) a business, this is the map of where the real risk lives and where your hours actually earn their keep.

Small business acquisitions — Main Street and lower-middle-market deals, often SBA-financed — are not just scaled-down versions of the transactions you read about in the news. The buyer is frequently an individual using their savings and a 7(a) loan, the seller is often the founder, and there is rarely a deep balance sheet standing behind the reps. That changes how you paper the deal. Below, we walk it stage by stage.

Where the deal attorney actually earns the fee

Your client is paying you to do three things: allocate risk in writing, surface the problems before money moves, and make the close actually happen on time. Everything that follows ladders up to one of those. Keep the deal moving — in small transactions, momentum is a real asset, and the lawyer seen as the reason this is taking forever loses influence fast — but never trade speed for an unpapered risk your client does not understand.

Stage 1: Reviewing the letter of intent

By the time you see the LOI, the business terms are often already agreed in principle. Your job is not to renegotiate price — it is to make sure the structure your client signed up for is the one that actually gets documented, and to flag the handful of LOI provisions that are binding even though the rest is not.

A typical LOI is mostly non-binding as to the deal itself, but usually contains binding provisions worth reading carefully:

• Exclusivity / no-shop. How long is your client locked up, and is the window realistic for diligence and financing? An SBA close can easily run 60–90 days; a 30-day exclusivity period sets everyone up to blow the deadline.
• Confidentiality. Often folded in or referenced from a prior NDA — confirm it survives and covers the right parties.
• Deal structure. Asset purchase vs. stock or equity purchase. For small businesses the answer is usually an asset purchase — the buyer gets a stepped-up basis and leaves most historical liabilities behind — but confirm it matches the tax and liability posture your client expects.
• Expenses and breakup costs. Who pays for what if the deal dies.

The biggest favor you can do at this stage is set expectations: explain which terms are effectively locked once your client signs, and which are still fully open. A clean LOI review prevents the far more expensive fight later, when the purchase agreement does not match what the client thought they agreed to.

Stage 2: Drafting and negotiating the purchase agreement

The asset purchase agreement (APA) — or stock purchase agreement, if it is an equity deal — is the center of gravity. This is where risk actually gets allocated. Buyer's counsel usually drafts in smaller deals, but not always. Whichever side you are on, these are the provisions that matter most:

• Purchase price and adjustments. The headline number, plus how it flexes — most commonly a working capital adjustment (more on that below) and the treatment of cash and debt at close, typically a cash-free, debt-free deal.
• Purchase price allocation. How the price is allocated across asset classes for IRS Form 8594. It is a tax issue with real dollars on both sides — get the client's accountant involved early rather than fighting about it at signing.
• Representations and warranties. The seller's factual statements about the business — financials, taxes, contracts, litigation, employees, compliance, no undisclosed liabilities. These are the backbone of the buyer's protection and the seller's exposure.
• Covenants. What each side must do between signing and closing (run the business in the ordinary course) and after it (non-compete, non-solicit, transition assistance from the seller).
• Indemnification. The remedy when a rep turns out to be wrong. Negotiate the survival period (how long the reps live after close), the basket or deductible (the threshold before claims can be made), the cap (the ceiling on liability), and the carve-outs for fundamental reps and fraud, which are usually uncapped.
• Conditions to closing. What has to be true for each side to be obligated to close — third-party consents, financing, no material adverse change, accuracy of the reps.

In SBA-financed deals, remember that the lender is effectively a third party to your negotiation. SBA rules constrain things like seller notes, standby terms, earnouts, and the seller's post-close role (depending on deal structure, ownership and control, lender policy, and the current SBA SOP, the seller's ongoing role as an employee or consultant is often limited — commonly to a short transition period). Paper the deal in a way the SBA lender will actually approve, or you will be re-trading terms days before close.

Stage 3: Building the disclosure schedules

If the reps are the seller's promises, the disclosure schedules are the exceptions to those promises — the place the seller lists the material contracts, the one pending dispute, the customer concentration, the lease that needs landlord consent. They are tedious, they are always late, and they are where deals quietly get won or lost.

• The seller drafts them, but counsel drives them. Give the client a clear schedule-by-schedule request list tied to each rep, and start early — gathering this information always takes longer than the client thinks.
• A good disclosure is a shield. Anything properly disclosed generally cannot later be the basis of an indemnification claim. From the seller's side, disclose generously; from the buyer's side, read every schedule as carefully as the reps — the exceptions are where the real condition of the business shows up.
• Watch for cross-disclosure. Negotiate whether a disclosure made against one section also counts against the other reps, or only the one it is listed under.

Stage 4: Escrow, holdbacks, and the working capital true-up

Escrow is how the deal keeps the seller honest after the money moves. In small acquisitions you are usually dealing with two related mechanics:

• Indemnity escrow / holdback. A portion of the purchase price held by a third-party escrow agent for a set period to satisfy post-closing indemnity claims. Negotiate the amount, the release timeline (often tied to the survival period), and what triggers a release or a continued hold.
• Working capital adjustment. The deal is typically priced on a normalized level of working capital — the peg. At close you estimate it; weeks later you true it up against the actual balance sheet, and the price moves up or down accordingly. Define the peg, the calculation methodology, and a clean dispute mechanism (usually a neutral accountant). Vague working capital language is one of the most common sources of post-close fights.

Pick the escrow agent and confirm the funds-flow mechanics well before closing day. On SBA deals, coordinate the escrow and standby seller-note terms with the lender so nothing in your escrow language conflicts with the loan authorization.

Stage 5: The closing checklist

The closing checklist is the project plan that turns a signed agreement into a done deal. Build it early, assign every item to a name and a date, and run it like a punch list. A workable small-business closing checklist usually covers:

• Corporate and authority. Good-standing certificates, board or member consents, and formation of the buyer's acquisition entity.
• Third-party consents. Landlord consent or lease assignment, change-of-control consents on key customer and vendor contracts, franchisor approval, and transfer of licenses and permits. These are the items most likely to slip the date — start them first.
• Financing and lender conditions. SBA loan documents, the lender's closing requirements, life insurance assignments, lien and UCC searches and filings, and payoff letters for existing debt.
• Transaction documents. Executed APA, bill of sale, assignment and assumption agreement, IP and lease assignments, the seller note and standby agreement, non-compete, and any employment or transition agreements.
• Funds flow. A reconciled flow-of-funds statement showing exactly who sends and receives what, down to the dollar, before anyone wires.
• Post-closing. Tax filings, the working capital true-up timeline, name and registration changes, and a tidy closing binder so the file is clean if anyone looks at it later.