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Escrow Account Worth the Money

April 26, 2006|Karen E. Klein | Special to The Times

Question: I'm purchasing a retail business for a price based on existing inventory, equipment, assets and goodwill. The seller has indicated that the landlord is willing to extend the long-term lease. Do we need an escrow company to handle the money transfer? Other than turning over the keys, what else is involved in turning over assets, existing supply and service contracts, and utilities?

Answer: Most states, including California, have "bulk transfer" laws designed to ensure that a buyer receives a business with no fraudulent conveyance on the part of the seller. Nevertheless, you'd be wise to open an escrow account for your business purchase, says Gene Pepper, a Glendale-based business broker and consultant (www.genepepperconsulting.com).

Escrow companies are neutral third parties that hold a purchaser's money until both the buyer and seller have completed satisfactory due diligence.

"The cost is minimal, considering what a good escrow company can do for you," Pepper said.

Make sure that you choose an escrow firm with experience handling commercial transactions, rather than one with a primary focus on residential purchases.

For the cost of the advertisement, "your escrow company will run a notice in a local paper for about 30 days, notifying all vendors that have been servicing the company that there is a sale pending and that they must notify the escrow firm in writing if they have claims for payment," Pepper said.

When it comes to your business lease, don't take the seller's word for anything, Pepper said.

"I suggest that whichever lease is agreed upon, a copy of it should be submitted to the escrow company," he said. "Do not close your purchase without a completed new or extended lease signed by you and the landlord."

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Understand Business Before Starting Firm

Q: I would like to start a pet clothing and accessories business, but I do not know where to begin. Could you give me some guidance?

A: The smartest thing you -- or any would-be entrepreneur -- can do before embarking on a business venture is to thoroughly research not only your business idea, but also small business in general. Whether you want to start this company as a sideline, a hobby or a full-time business, knowledge will be the key to your success.

In a best-case scenario, you would take a job with a pet clothing company for several months and learn the business from the ground up.

"Find out everything you can from the inside out about how the business is run," recommended John Delmatoff, a business coach at PathFinder Coaching in Murrieta.

If you can't get a job in the industry, create your own knowledge base. One way to do that is to immerse yourself in the pet world. Visit pet stores, pet fairs and other places where animal lovers congregate.

"Try to learn as much about the buyers and what they're buying as possible. I'd look on the Internet for similar businesses and learn everything I could about them," Delmatoff said.

Meanwhile, take some business courses, particularly those dealing with small-business finance, a topic most would-be entrepreneurs lack sophisticated knowledge about. Contact your local Small Business Development Center, sba.gov/sbdc, or an office of the Service Corps of Retired Executives Assn., www.score.org, to get information on free and low-cost training. Business counselors can help you write up a simple business plan, decide whether you will manufacture your own product or buy it wholesale, and set measurable one-year goals for your enterprise.

Don't forget to develop the business with the idea of having fun at it, Delmatoff said. "There's nothing worse that running a business you hate, so you might as well build in the fun factor right from the beginning."

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Got a question about running or starting a small enterprise? E-mail it to karen.e.klein@latimes.com or mail it to In Box, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012.

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