If you’ve bought or sold a home in your personal life, you’re likely familiar with the concept of “escrow” — the process of storing money, titles or anything of value with a neutral third party until all sides have satisfied their obligations.
But, escrow plays a prominent role in the world of business as well. If you’re a business owner, you’re likely to use escrow at some point in the life of your company. That can take shape in a variety of ways, from the purchase of commercial properties to the process of buying or selling a business.
Escrow accounts for buying or selling a business
Escrow comes into play with large transactions, when there’s an exchange of significant amounts of money or high-dollar assets. It’s intended to hedge against risk: If you agree to pay another party a large sum for a product or service, you want to make sure you get what you pay for, and vice versa. So, it stands to reason that you will use escrow should you ever buy or sell a business.
The sale of a business can be lengthy and complex process, and the resulting deal can contain thousands of stipulations. Escrow accounts for business ensure that funds are secured while all parties fulfill their respective obligations. When the transaction is complete, the secured funds are released to seller as contracted.
Escrow accounts for buying or selling other assets
Whether buying assets to grow your business, or selling them off to streamline, you’ll likely need escrow. Assets can include anything from equipment to intellectual property, and just as it does in the sale of a business, escrow ensures the exchange of assets transpires as it is supposed to.
For example, if you’re organization is selling $1M worth of construction equipment, you want to make sure the $1M is available from the buyer before you begin preparations to deliver the product. The buyer, on the other hand, wants to make sure they get the equipment they purchased before they give up such a large sum. Escrow gives the seller piece of mind that the money is ready and waiting, and it allows the buyer to rest easy that they won’t part with their money unless they get the asset they’ve purchased.
This is especially important in the world of online transactions. Escrow adds an air of legitimacy in an environment that can leave both buyers and sellers at significant risk.
Buying and selling commercial property
While escrow is important in the realm of residential real estate, it is perhaps more critical in commercial real estate, where the deals are notoriously complex and negotiated between legal entities rather than individuals. Rather than simply transferring ownership from one party to the other, you’re likely navigating the transfer of deeds, environmental reports, zoning, warranties and other documents.
If your business decides to buy or sell a commercial building, you will use an escrow account to ensure that all the terms have been met before the sale is deemed complete.
Business escrow accounts with a return
As discussed, the business transactions that require escrow are often complex. In many cases, months or even years can pass before the transaction is complete. So, you don’t want your business’s escrow deposits sitting idly while the transactions are completed. This is why you should seek an escrow account that protects your funds and offers a competitive return.
ADM – earn more, risk less®
At ADM, we prioritize the safety of our clients’ money above all else. That’s why we offer escrow services designed to help your business stay protected and earn a competitive return. Our proprietary fintech ensures amounts ranging in excess of $75M are invested at a competitive rate and fully FDIC insured through our vast network of community banks, all with a single deposit and a single statement.