Home  >  Discussions  >  Is There Such A Thing As Paying Too Little When Buying A Small Business?

Is There Such A Thing As Paying Too Little When Buying A Small Business?

Share This Page    See All Discussions    See All Contributors    All New Discussions & Comments

Comments & Replies: 1     Views: 336     Posted By: Peter Siegel MBA  

We all understand the idea of paying too much for a small business. But is there such a thing as not paying enough? That seems like an odd notion, but I'm familiar with situations in which a buyer acquired a small business for a figure substantially under what probably was market value.

Topics: Buying A Business, Deal Structures, Selling A Business     Tags: business valuation, buying a business, deal structures, selling a business



We all understand the idea of paying too much for a small business. But is there such a thing as not paying enough? That seems like an odd notion, but I'm familiar with situations in which a buyer acquired a small business for a figure substantially under what probably was market value.

Yes there are instances when a seller will agree to let a buyer take over the business for a figure well below what most buyers would have been willing to pay. Usually the circumstances include an extremely motivated seller and a buyer who's there at the "right" time, and aware of the seller's eagerness to get out of the business.

I'm an advocate for what we call the "win-win" transaction, with both parties getting what they want; not one party taking advantage of the other. I've noticed that a deal involving a purchaser who purposely takes advantage of a "desperate" seller, does not always end well for that buyer. Maybe it's because of bad Karma or a short-sighted business strategy.

The purchaser of a service business had his all cash offer accepted although the price was about half of what the seller was asking. The owner of the business felt he needed to move immediately to another state to take care of his ailing mother, as she needed care and was unable to move to him.

Many of the seller's customers were sorry to see him leaving the business. When word got out that the new owner had taken advantage of the seller, they stopped doing business with the company. Within a few months, the business no longer generated a profit and the buyer came to realize that his deal wasn’t the bargain he’d expected.

And the seller of a retail store was in a hurry to find a buyer because of his quickly deteriorating health. His wife's insistence on getting out of the business, even if he had to "give it away," prompted him to accept the first offer. It was at a price about two-thirds of what he was asking, and was highly leveraged, with the seller taking most of the payment in the form of a promissory note. A few weeks after the close of escrow, the seller's wife became his widow, and soon after that she realized that the buyer was neglecting to make required monthly payments of principal and interest on the seller’s carry-back note. It was money she was counting on to live.

She explained her predicament to a business attorney. And once the lawyer learned about the circumstances of the sale, and examined the language of the note, she notified the buyer he was technically in default, and the total sum of the note was now due and payable. He was given 15 days to pay off the note in full or face a court action in which the widow would ask that the business assets be seized and sold. Any shortfall between the money raised by the sale and the full sum due the widow, including reimbursing her for legal expenses, would be the responsibility of the buyer. That might include, if necessary, the court requiring him to sell personal assets to raise the required sum.

The buyer was able to get a quick loan to pay off the widow and avoid her legal action. But the loan came with a high rate of interest and the borrower's risk of losing his home if it was not paid off exactly as he'd agreed.

Perhaps some of my colleagues will have a different idea about whether it's possible to pay too little for a small business. I've noticed the buyer able to achieve such a deal may come to regret it.


  Helpful Resources To Assist In Selling And Buying California Businesses

Brad Steinberg, Broker - Laundromat Specialists

Laundry specialists - founded in 1968 by three laundry professionals, PWS is a family-owned corporation. Through the years it has grown to become the largest vended laundry equipment distributor in the United States. Call Brad Steinberg at 323-721-8832 to sell or buy a coin or card laundromat.

Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews

The Bottomline: What Exactly Is Adjusted Net Income, SDC, And Cash Flow?

The use of add backs & adjusted net income is common among sellers of businesses when showing their financial information/performance. But buyers are cautioned to review financials and tax returns / documents closely. Peter Siegel, MBA with BizBen (ProBuy & ProSell, Financing Expert) explains.

How Many Months Should I List My Business With A Business Broker?

It's important to remember that selling a business takes time. Unlike selling a house, which can be sold relatively fast, a business can take up to six months to a year to sell. Joe Ranieri (Orange County Business Broker) at 714-292-5448 explores this topic from a Business Brokers perspective.

Tips When Using Escrow Bulk Sale Services When Buying Or Selling A Business

The final part of the business for sale transaction is the escrow and bulk sale process by Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor) answers questions and describes the escrow and bulk sale process. Peter can be reached direct at 866-270-6278.

Sellers Ask: How Long Should I Wait For The Buyer To Do Their Due Diligence?

Business sellers & buyers ask the question in the buying process-how long should I ask for due-diligence when buying a small business? The answer really depends on several factors. They include: type of business, demand for the business, complexity of the business. Advisors weigh in on this topic.

Thinking Of Selling My Business: What Factors Create Value And Drive Price?

There are a lot of misconceptions about what enhances the value of a business. The following factors in this Discussion Post on BizBen are aspects of a business that really drives its value and pricing. Business owners thinking of selling should check these out these factors before selling.

Tips For Faster SBA Loan Approvals For California Small Business Purchases

In this article on BizBen, business purchase financing advisor and SBA loan broker, consultant Peter Siegel (Business Purchase Financing Expert/Advisor & the ProBuy Program Director at BizBen) at 866-270-6278 shares his views of getting SBA loan financing faster for business purchase financing.

Financing A Business Purchase With Limited Or No Real Estate Collateral

In my experience working with the "right banks and financial institutions" repayment ability sometimes overrules collateral pledged by someone needing financing for a business purchase or a down payment. Peter Siegel, MBA (Business Purchase Financing Expert) at 866-270-6278 shares his experience.

Absentee Run Small Businesses - Is That Really A Possibility For Buyers?

Is buying a absentee run small business really a possibility? Peter Siegel (BizBen ProBuy Director) gets asked this question a lot in his consulting sessions with business buyers. Read more about what other Advisors and Intermediaries feel about this topic on this popular BizBen Discussion!

See All News, Tips And Events

Escrow Services From Helen Yoo New Century Escrow
SBA Loans For Gas Station Financing
Chris Lazuric Orange County California Broker
Larry Larsen Laundromat Broker


Auto Related
Business Services
Children Related
Communication Related
Computer, Internet Related
Construction Related
Entertainment Related
Financial Services
Health, Beauty Related
Home Improvement Related
Maintenance Related
Manufacturing Related
Media, Publishing Related
Pet Related
Photography/Video Related
Real Estate Services
Restaurant, Food Related
Retail Related
Service Related
Sports Related
Transportation Related
Travel Related
Wholesale Related

Auto Body Shops
Auto Repair Shops
Bakeries
Bars, Sports Bars
Cafe Restaurants
Car Washes
Cleaning Services
Clothing, Apparel Stores
Coffee Shops
Convenience Stores
Deli Restaurants
Discount, Dollar Stores
Dry Cleaners
eCommerce Websites
Fast Food Restaurants
Florists, Flower Shops
Full Service Restaurants
Gas Stations
Gift Shops
Gyms, Fitness Facilities
Home Health Agencies
Hotels/Motels
Ice Cream Shops
Juice, Smoothie Shops
Laundromats
Liquor Stores
Markets, Marts
Nightclubs
Pizza Restaurants
Postal, Shipping Stores
Preschools, Day Care
Print Shops
Salons, Beauty Shops
Sandwich Shops
Smog Test Only Shops
Smoke Shops
Spas, Med Spas
Sushi Restaurants
Tire Shops
Towing Services
Vending Routes
Wireless, Cellular Shops
Yogurt Shops

Alameda
Alpine
Amador
Butte
Calaveras
Colusa
Contra Costa
Del Norte
El Dorado
Fresno
Glenn
Humboldt
Imperial
Inyo
Kern
Kings
Lake
Lassen
Los Angeles
Madera
Marin
Mariposa
Mendocino
Merced
Modoc
Mono
Monterey
Napa
Nevada
Orange
Placer
Plumas
Riverside
Sacramento
San Benito
San Bernardino
San Diego
San Francisco
San Joaquin
San Luis Obis
San Mateo
Santa Barbara
Santa Clara
Santa Cruz
Shasta
Sierra
Siskiyou
Solano
Sonoma
Stanislaus
Sutter
Tehama
Trinity
Tulare
Tuolumne
Ventura
Yolo
Yuba

0 to $99,999
$100,000 to $249,999
$250,000 to $499,999
$500,000 to $999,999
$1 million to $2 million
over $2 million




BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2017, All Rights Reserved

                       
Sign Up Today - For Our FREE BizBen Weekly Email Newsletter
Includes The Best Info On Buying, Selling, Valuing, Financing California Businesses:
Articles, Blog Posts, Podcasts, Videos/Vlogs, Discussions, Q&A, Workshops, Webinars,
Resources. Watch For An Email Confirmation After Signing Up Above. Thank you.


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 
Search BizBen.com

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
Uncover Hidden Problems In Due Diligence When You Buy A Small Business
Buy A Business Or Start From Scratch? 5 Key Differences For Business Buy...