Escrow appears twice in a business sale and the two are different things. At closing, an escrow or settlement agent holds and disburses the money. After closing, an escrow holds back part of your price against the warranties you gave. Sellers who conflate the two are frequently surprised by how little arrives on the day.
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Closing escrow
A neutral agent receives the buyer's funds, pays off any loans secured on the assets, settles broker commissions and legal fees, prorates rent, utilities and taxes, and disburses the balance. The settlement statement showing all of this should be reviewed before closing, not on the day, because every line on it is negotiable in advance and none of it is afterwards.
Indemnity escrow
Part of the price held for twelve to twenty four months against claims under your warranties. Size, duration and release mechanics are all negotiated. A staged release, part at twelve months and the rest at twenty four, is common and better for a seller than a single distant date.
What to negotiate
Who pays the escrow agent's fee, usually shared. Who earns the interest, which should be you since it is your money unless a claim succeeds. What a claim notice must contain, because a notice that need only assert a possible claim can freeze the entire balance until it is resolved.
Questions people ask about business sale escrow
Is escrow required?
A closing agent is normal practice and in some states usual for transfers involving property. An indemnity holdback is a negotiated term rather than a requirement.
How much is normally held back?
It varies with deal size and risk. What matters more is the release schedule and the notice requirements, because those decide whether you actually see it.
Can insurance replace it?
Warranty insurance can shrink or replace a holdback where the deal is large enough for underwriters to be interested.