Do you feel listing agents, when you inquire about a business, are pushing you around? Does your experience go something like this? You call up and inquire about a business, which is for sale. If you leave a message, your lucky if you get a return phone call. When you finally get the listing broker on the phone, he tells you that you must sign a NDA (
Confidential Non-Disclosure Statement) before he will give you any information, at all. Then after you sign the NDA you are told that the financials are not available to you, until you make an offer. You reluctantly make an offer based on the presented information on the web site, only to find out that there is no more information then the financial numbers listed on the web site. Is this about how it goes?
Did you know that a competent agent is supposed to get from his client, when receiving a listing, or shortly thereafter a
profit and loss statement? Then the broker is suppose to do a recasting or add back sheet which corrects the profit and loss statement, so that a
seller's cash flow figure can be determined.
What usually occurs is when you ask for a payroll breakdown or explanation, they do not have it and you wait weeks to get it. The sales figures and cash flow amounts on the profit and loss statement do not match up with what was presented on the web. You are then given excuses by the listing agent, who also tells you to either believe the seller or find someone, on your own, to help with your financial review. The broker doesn't assist you in making sense of all this unrelated information and certainly doesn't help you figure out what the truth is. Does this sound like what you go through?
Well I am a due diligence specialist/business broker who thinks that this kind of behavior is immoral and unethical. I for one 'I'm mad as hell and I am not going to take it anymore,' and you shouldn't put up with it either. Are you interested in knowing what you can do about it?
When you call up the listing agent and ask about a business, be in control of the conversation. Do not just start asking a lot of questions that the agent will not answer. Instead find out if he knows anything about the business he is marketing: I am talking about the financial numbers. This is what determines, if you are really interested in the business. Ask him if he has, in his possession, the profit and loss statement for the last 2 complete years? Ask him if the seller has given him the tax returns for the business for two recent years? Ask him if he has taken that information, if he says that he has it, and done a recasting sheet or a seller’s discretionary income add back sheet? Then ask him if he has or can get a payroll breakdown either for a week or month? When he tells you 'no' to any of these items, then it is time to tell him
NO to signing an NDA. Tell him you are interested in the business only when he has these things in his possession and not until then. You then have one more question for him. Ask him or her if when he has these items and you sign an NDA will he release all or part of this information to you, without an offer?
If he says yes, then wait for the return phone call. If he says 'no' then tell him that you will want the correct sales and sellers discretionary cash flow, off of these documents before you sign the NDA, since this is the new numbers that he should be publishing on the web. When he has received the documents you have asked about, both of you will find, to your 'surprise' that these are different numbers then what was on the web. The numbers may still not be correct but they are a lot closer to the truth, because the broker has actually done some work, in order to figure out what the actual cash flow figure is.
If the broker does not have this information, in his hot little hands, and he cannot get it before asking you to sign an NDA, then there is absolutely no reason to sign an NDA. Why? Because you should not buy the business, or even waste your time looking at the business. Why? Because nothing you see or are being told will be true. You cannot hire anyone to help you audit the information, until there is information to audit. Without having someone experienced to help you review the financial information, you should never buy any business. There is a 99.99% probability that you will over pay and be cheated out of at least half the purchase price that you will be forced to pay for the business. Are you shocked?
Lets clean up this industry. Demand the listing agent represent you, as well as the seller. Did you know that in the State of California, a broker representing both sides in a transaction is legally a dual agent? He has a fiduciary responsibility to represent the buyer as well as the seller. If they are not willing to do that, then tell them you want to bring in your own "buying agent", who will look out for your interest. Regardless, if they will not provide the above information, the asking price better is based on the asset value of the business without any allowance for good will, because there is a 99% chance there is no goodwill.
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This Article/Blog Post Was Contributed By: Willard Michlin assists with Due Diligence Services throughout California or
see more info about him and his listings in Southern California. He can be reached direct at 805-428-2063. View his
schedule of live workshops.
See all contributions from Willard Michlin
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