Whether they are called big lies, little white lies, fibs, misunderstandings or exaggerations, the Californian ready to buy a small business may hear some non-true statements from the seller, or even from the professionals business intermediary (the broker) while examining an offering.
Untrue statements usually are meant to convince a buyer to move ahead on a deal in a situation in which he or she is unlikely to proceed toward a purchase if told the truth. The would-be entrepreneur who is fairly new to the challenge of examining businesses for sale may not recognize a statement that is not entirely, or even partially factual.
So it's a good idea to be informed about those statements encountered when examining a business that may be made by seller or agent, but unlikely to be true.
1. "I don't have the most current figures but I know business is improving." This is a common statement made by sellers who say they haven't got profit and loss figures for the past few months but have provided tax returns or year-end figures for last year. And in some cases, sellers claim they haven't had a chance to file last year's returns with the IRS and want a buyer to rely on performance statistics that are more than a year old.
While I'm aware of a few cases in which the owner of a business simply didn't keep accurate and up-to-date records and had no intention of hiding the company's performance results, that is certainly not the norm. And when someone is trying to sell his or her business it is highly suspicious if the owner can't furnish financials showing recent revenue and earnings performance. To me, it means that the seller is purposely withholding material and relevant information about the business that needs to be disclosed. It's usually correct to assume the owner has something to hide. And it's a good idea for a buyer to dismiss the offering and move on to other business for sale opportunities.
2. "There's more money made here than what shows on the books." This statement is meant to suggest that the seller who has just uttered those or similar words, is letting the buyer in on a little secret""that not all sales are recorded, that some of the revenue generated by the business goes directly into the owner's pocket. Some buyers are pleased to hear this news but most are quite skeptical about it. If the seller is, in effect, admitting to lying to the taxing authorities, is it possible he or she should just not be trusted? If there is some money being collected "under the table," does it amount to a large sum over several weeks and months, or is it a matter of a few bucks, an inconsequential amount when determining the company's income and deciding whether to make an offer? The best advice usually is to avoid a business offering owned by someone who claims to be "stealing" from the taxing authorities.
3. "We'll have no trouble getting the landlord to switch the lease to a new owner." Some sellers making this statement might believe this to be the case, but often are wrong. That's because they haven't taken the time to talk to the property owner to whom rent is paid for use of the business premises. Perhaps the business owner doesn't want to have that conversation until a viable buyer can be introduced to the landlord. It also is often the case that the seller has spoken to the landlord about a change in ownership of the business and has learned not to expect cooperation providing the lease to another party. In some cases, the property owner may require a large "lease transfer fee" (a form of extortion) as a requirement for agreeing to take on a new tenant. It almost always is a good idea for a seller to get a commitment from a landlord regarding transfer of the lease before the business goes on the market. But sellers who don't have that commitment have been known to say the transfer will be "no problem" when, in fact, any deal arrived at between buyer and seller may be destroyed by the unwillingness of the business property owner to cooperate with a transfer.
4. "All the personal property you see here is owned free and clear." Perhaps the seller has forgotten that the refrigeration in her restaurant is being leased. Or the printing company owner has forgotten he still is making payments on one of the company's presses. This statement also may be a little lie that is told to impress the buyer prospect about the financial strength of the company. In any event, any buyer interested in a business should work to ascertain how much of the equipment is owned in due-diligence and will be transferred with the business, and how much of what you see when touring the company is not going to be yours if you make the purchase.
5. "The employees are very loyal to the business. I am sure they're going to stay with a new owner." Unless the owner has discussed the plan with the employees-few sellers actually do this" there is no way of knowing whether or not employees will want to stay with the company when it is under new ownership. And even if employees say: "Yeah, I'll stay," they may have no intention of doing so. Or may change their minds once the buyer takes over the business. Since the statement about employee loyalty cannot be readily verified, the prospective buyer should be aware that he'll need a plan to get competent people working in the business in the event the employees don't stay with the business under its new ownership.
6. "I don't have any special relationships with customers or with suppliers. They will be just as loyal to you as they are to me." Sellers usually are not able or willing to guarantee a buyer that all existing customers and suppliers will continue to do business with the company when under new ownership. Even the seller's firm belief in this statement does not necessarily make it true. And like the statement about loyal employees, there is no practical way to investigate the question. The best plan to guard against the problems of losing key suppliers or customers is to have the seller available, as part of the post-sale training agreement, to introduce the new owner to repeat customers and venders. And the business buyer should plan to institute marketing and customer retention programs immediately upon taking over the business. Sometimes, incidentally, the new owner learns that the seller had alienated people, and is able to get back some of those customers and suppliers by letting them know the company will be under new, more accommodating ownership.
Every owner with a small business for sale does not necessarily mean to purposely mislead a buyer prospect when making some of these statements. But in many cases, when communicating one of these six ideas, the seller is wrong. A smart buyer is aware of this and is skeptical""and perhaps seeks verification, when hearing one of these six possible untruths.
About The Author: Peter Siegel, MBA, is the Founder of BizBen.com and is the Director of the successful BizBen ProBuy Program (90% success rate) for business buyers of California small and mid-sized businesses. He has recently published an eBook "How To Buy A California Small Business" that is available online. If you need assistance in your search to buy (or finance the purchase of) a California business and would like to speak with Peter Siegel, phone him direct at 866-270-6278.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Matt Weiler, Business Broker: Gas Station Specialist
Business Broker Specializing in primarily gas stations. Geographic area of focus: San Francisco Bay Area to Sacramento and as far South as Monterey, California. To sell or buy a small or large gas station phone Matt (gas station business broker specialist) direct at 408-623-0920.
|Ralph Santos, Business Broker Specialist - Health Care Related Businesses
Using my MBA and my perseverance I will make things happen! I provide business brokerage niche services specializing in the hospice and home health care agency industry in the Los Angeles County or Ventura County areas. For either buying or selling assistance please phone or email me today.
|Joe Ranieri, Business Broker, Orange & LA County Areas
Having owned retail/restaurant businesses for over 20 years, my interest turned to listing and selling businesses rather than owning them. I specialize tend to specialize in Orange County high volume restaurants, fast food independents and chains, bars and liquor stores. Call 714-292-5448.
|Chuck Post: Laundry Buyer Representation, Consulting, Due Diligence
Chuck Post has 32 years experience in the laundry industry, specializing in assisting laundry buyers (and entrepreneurs) with buying or starting up, building, re-tooling, laundries throughout California. Laundry buyer representation, consulting, due-diligence, lease negotiations, laundry valuations.
|Ryan Clark, Business Broker, Southern California
The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups. Phone Ryan at 310-652-8353.
|Matt Sadati, Business Broker, SF Bay Area, Northern CA
I have Engineering and Law, JD degree, with over 30 years of experience in all phases of entrepreneurship. During the past 15 years my concentration has been in business of mergers and consulting. I have owned and operated over 33 businesses each having one to 30 branches.
|Michael Davidson, Business Broker - Southern California
Los Angeles Business Broker providing M&A quality services for Small Business Owners. We leverage our technology and expertise to Simplify & Expedite the Business Sales Process. Matching the right buyer with the right business is how we define success.
|Lee Petsas, Business Broker - Orange, San Diego Counties, Inland Empire
UBI Business Brokers has been successfully selling businesses in Southern California since 1965. Our Agents have over 100 years of experience in selling small to medium size businesses throughout Southern California. We service Orange County, Inland Empire, San Diego. Phone Lee at 714-363-0440.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
|Interview: With Chuck Post On How To Buy A Laundry Business Successfully
Chuck Post (and his Associate Chris Mason) a California laundry consultant, due diligence specialist, buyer representative for laundry buyers shares his thoughts with Peter Siegel, MBA on his weekly BizBen Vlog & Podcast show. Chuck and Chris cover all related topics on buying a California laundry.
|When Buying A Laundry Why Buyers Should Have An Exit Strategy When Buying
Chuck Post (reach him at 619-227-5711) a laundry consultant, specialty broker, buyer representative & due diligence advisor starts this discussion on why it's important to have an exit strategy in mind while buying a laundromat! He & others explain why this concept is so important to serious buyers.
|Tips From A Restaurant Broker - Check A Restaurant For Karma Before You Buy
Jeff Back (925-736-8200), a SF Bay Area broker specialist who specializes in selling restaurants discusses what he looks for when sizing up a potential restaurant for sale. Do the restaurants you're thinking of purchasing have good Karma? See Jeff's insights into this topic on restaurant karma.
|FREE Live Laundry Seminars For Buyers: See Our Upcoming Schedule Of Seminars
Looking to buy or start up a card or coin laundromat? PWS Laundry is presenting their schedule of upcoming Seminars for laundry buyers & entrepreneurs. These informative live Seminars will cover an overview of the laundry industry, selecting the right location, an overview of leases, Q&A, plus more.
|FREE Online Webinar This Week: For Buyers - How To Buy & Value Laundromats
Chuck Post hosts this live FREE online webinar on How To Buy & Value A California Laundromat. Webinars are scheduled every week! Have your questions ready for an open and honest discussion about both the pros & cons of the laundry business. Phone 619-227-5711 for more information & to RSVP today.
|Buying A Restaurant With Financing: 5 Options For Restaurant Business Buyers
In this Discussion, Peter Siegel MBA (Business Purchase Financing Advisor at 866-270-6278) discusses financing of purchasing a small to mid-sized restaurant business (with or without real estate). When it comes to financing a restaurant, potential restaurant buyers have many options to choose from.
|Liquor License Assistance - SF Bay Area - Jim Saxton
Jim Saxton - 20 years experience of local governmental requirements, such as Police Departments, Zoning / Planning Departments, ABC District Offices, my company Liquor Licenses of SF Bay Area is very qualified to resolve all of your concerns during the liquor license transfer process. 925-787-0770.
|Laundromat Business Valuations: Could Buyers Of Laundries Be Overpaying?
Chuck Post (laundry buyer rep, consultant, due-diligence expert) discusses the factors of appraising laundries. Why such high purchase prices is baffling - many times the value is so misunderstood that it results in laundry buyers over-paying for a laundromat. Reach Chuck direct at 619-227-5711.
|See All News, Tips And Events|