When selling your business, typically you’re going to “represent and warrant” certain things about the business (e.g., you’ve provided accurate info, no known legal issues pending). If something turns out to be not wholly accurate, the buyer can come back to you for a certain percentage of the purchase price.
In smaller deals, the seller can simply agree to a guarantee. But as transactions get larger, buyers may ask sellers to put that money in escrow. That money is then tied up for typically 12 to 18 months.
As an alternative to escrow, the deal can include reps and warranties insurance. Sellers don’t have to hold that money in escrow, and they shed the risk of covering a reps and warranty claim.
Reps and warranty insurance can expedite the sale process and even drive down your legal fees. (Negotiations are easier with insurance in place.) To learn more about creative deal structures and how key negotiation points can impact your proceeds, give us a call. All conversations confidential.
