Dear Janet,

When someone is buying a business, is the deal set when a deposit has been made into escrow? Or, does the seller still have the right to sell to another person who offers a higher price for the business? I thought I understood this, but different people are telling me different things.

--Sue

Dear Sue,

Here's the way the sale and purchase of a business normally work. The individual selling the business will list the business for sale and set a price. When someone is interested in buying the business, they make an offer, usually for less money than the asking price. Buyer and seller will continue to negotiate, and if they reach agreement on a price, a contract will be drawn up and the buyer will make a deposit into an escrow account. "Assuming that there are no contingencies, or if there are, that they can be met, there is a valid, enforceable contract," says Kent Seitzinger, a California attorney. "Once the contract has been formed, sale of the business to someone else will almost certainly have significant legal (and financial) consequences." 

Your attorney should be able to explain the process to you in more detail. If you don't have an attorney, get one. There are too many legal ramifications to buying a business. This is truly the type of situation where being penny wise would be pound foolish. 

About the author
Janet Attard is the founder of the award-winning  Business Know-How small business web site and information resource. Janet is also the author of The Home Office And Small Business Answer Book and of Business Know-How: An Operational Guide For Home-Based and Micro-Sized Businesses with Limited Budgets.