Share This Info:  

6 Possible Untruths Told To Business Buyers When Buying A Small Business


Possible Lies When Buying A Business

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.

They are:

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.

Peter Siegel, MBA 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 925-785-3118.


Categories: BizBen Blog Contributor, Business Purchase Financing, Buying A Business, Deal And Escrow Issues, How To Buy A Business


Comments Regarding This Blog Post


All Good points Peter. One important point mentioned is getting the lease read by a real estate attorney. Typically when there's a lease assignment, not much can be done to change that lease you'll be inheriting but you should know what your getting into. Some people feel like its a waste of money, it is not. Landlords are litigious and they will hold you to what is written.

Contributor: Transactional Attorney

Great post, Peter! Buyers have to go into an acquisition with their eyes open and you have nailed the key points that can cause disputes down the line.

Once a buyer verifies the above (and all other material aspects of the transaction) they can then start thinking about how to draft the right contract language to protect them if they uncover anything after the transaction that the Seller wasn't honest about.

They will still be faced with the prospect of bringing legal action, but Buyers can at least put themselves in a much stronger legal position by requiring detailed seller representations and covenants ahead of time. Having that additional leverage can sometimes make the difference between lengthy litigation and forcing an early settlement.


There is so much truth in Peter's article about lies.

The savvy seller should anticipate the legitimate suspicions that a buyer may have about the seller's honesty, by doing the following:

1. Even if it's near the end of the fiscal year and all the financials are not yet completed, be prepared to show a buyer current (monthly) sales figures, the recent bank statements showing expenses and deposits, and any preliminary, draft, or "subject to verification" P&L figures for as much as possible of the current or recently-ended previous year. And, if you are serious about selling your business, make one of your top priorities completing all financial documents as soon as possible, even if it mean added expense.

2. If you have "cash" income that you haven't reported in the past, then, as soon as you decide you're going to sell your business, start reporting it! At least you can show that you have seen the light and have stopped cheating; but, Peter is right: if you lie to the government, why won't you lie to a buyer?

3. In many businesses, location is critical to value. The prudent seller has the lease reviewed by a business attorney familiar with commercial leases to determine the terms for assignment and/or sub-let and the seller's possible ongoing liability. If you can, you want to extend the lease for as long as necessary to preserve the value of the location. Every situation is different, but your lease is a very important conversation to have with your business broker and attorney, before you start marketing the business for sale.

4. Be upfront about any finance or leasing liens on any of your furniture, fixtures, or equipment. It's going to come out eventually when the escrow agent conducts a UCC-1 financing statement search. Since any lien will need to be satisfied prior to closing or through the closing by the escrow agent taking funds from your proceeds, what's the big secret? And, in some cases, it might be an advantage: the lienholder might agree to have the new owner continue the payments, thus reducing the amount of cash they will need to close. (Essentially this is easy purchase-money financing.) You end up with the same amount of money in either case; but, if you hide the lien from your broker or buyer, you lose any chance of making the sale easier by transferring payments to the new owner.

5. Employees are a very delicate matter. They can often be your most valuable and most volatile asset. You generally do not want to tell them about an impending sale until it is imminent; but, there are proactive things you can do in advance:

a. Enter into an agreement with your key employees about your "mutual commitment to the long haul." In return for a renewed confidentiality agreement, offer them a bonus if they are "with the company" in six months or a year. Then, make it a provision of your sale that the new owner honors your commitment. As soon as the turnover occurs, you and the new owner reassure the employees that the commitment will be honored.

b. Keep morale high during the selling process. Bring in lunch. Sponsor company social events. Ask "What would make you happier working here?" --and respond positively.

c. Compensate them appropriately and make sure your buyer knows it, by showing how your pay scale compares favorably to your industry's norms. Employees are less likely to jump ship if they are being paid fairly.

6. Anticipate the buyer's legitimate question about the importance and value of the owner's personal involvement with business relationships. Establish regular interaction between your key employees and your essential suppliers and customers. Delegate phone calls, emails, personal visits to these employees. And be able to demonstrate to a potential buyer, by concrete evidence, that you are not the "center of the universe" in your business. One enjoyable and dramatic way to demonstrate that the business relationships will continue without you, is to schedule yourself a 3- or 4-week vacation. If you feel that you can't, you have serious "value-building" to do. If you can take such a break, document the results with copies of your tickets and itinerary and the specifics of your business performance during that time (sales, revenues, expenses, units produced ... whatever). Who knows? The business just might do better without you! Just recently, a seller of a business I have listed left for a two-week cruise. On his return he discovered that they had done just about the best two weeks of business ever! Buyers looking at the business are very impressed!


  Helpful Resources To Assist In Selling And Buying California Businesses
Taj Randhawa, Business Broker Specialist - Gas Stations, Liquor Stores

If you are interested buying or selling a gas station, liquor store feel free to phone me for a consultation. My vast experience & specialization in gas stations & liquor stores helps me in serving my clients with full confidence, trust & sincerity. Serving Central Valley, SF Bay Area. 559-259-4247.

Prabhjot Randhawa, Broker: SF Bay Area, Northern Central Valley

I'm a Business Advisor at Liberty Business Advisors of San Fransisco. I have over 20 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 10 businesses.

Larry Larsen, Broker, Laundry Specialist - Orange, LA Counties

I have over forty years of experience in the sales, ownership, management, and construction of coin laundries. He is a licensed broker active in the sale of coin laundries, a licensed insurance agent specializing in coin laundry insurance.

Mike Hurrell, Broker: Coin & Card Laundry Specialist Brokerage

Providencia Properties Inc in association with Golden State Laundry Systems is a full service Coin Laundry Real Estate Broker. At GSLS you will receive personalized attention from our professional staff of coin laundry experts. To sell or buy a Southern CA laundromat call Mike at 310-223-2240 X209.

Peter Siegel, MBA - SBA Loans, Non SBA Financing Assistance

For over 25 years I have provided niche business purchase financial advisory and loan placement services with SBA and Non-SBA Loans, Retirement Plan Conversions, Private Investors, etc. Financing amounts available: $20K to $7MM. Call today to get pre-qualified or receive financing: 866-270-6278.

Michael Floorman, Business Broker, BTI, San Francisco Bay Area

Business Team, San Jose (Campbell) located in the Pruneyard Towers at Bascom and Hamilton. Established in 1981 Business Team with over 6600 sales to date has 1000 business listings to choose from, paid Google advertising. We offer highly trained and experienced professionals.

Steve Erlinger: Laundry Broker, Consultant - Southern California

I specialize in the laundry industry broker and consultant in Southern California. I assist buyers navigate the many facets of finding, evaluating, and operating a laundry business. I also help current laundry owners find additional stores, sell, evaluate an existing laundromat.

Rob Hartman: Business Broker, SF Bay Area

Business brokerage services in the SF Bay Area. I bring skill, integrity and energy to all of my clients and our projects. I'm accustomed to working with a wide variety of clients and their businesses; large or small, simple or highly complex. Get a free consultation by phoning 650-279-3097.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
Buying A California Gas Station: Top 5 Risks For Gas Station Business Buyers

Those seeking to buy gas station business opportunities need to know about five factors that can make this purchase particularly risky compared to other businesses. Peter Siegel, MBA (BizBen ProBuy Program & Business Purchase Financing Expert) at 925-785-3118 discusses this topic about gas stations.

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.

FREE Webinar: Buying Or Selling San Francisco Restaurants - Best Practices

This informative 40 minute interview/webinar about buying & selling restaurants in San Francisco with restaurant broker specialist Cheryl Maloney is a real eye opener for restaurant buyers and sellers. Cheryl gives great advice to both buyers and sellers from her years of experience in the industry.

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.

Why Restaurant Buyers Typically Fail: Best Pro Tips For Buying A Restaurant

Buying a restaurant (no matter what type) can have many pitfalls, and potential restaurant buyers should know how to avoid getting burned! Several restaurant intermediaries and advisors weigh in on this BizBen Discussion about the best way to find, purchase and run a restaurant successfully!

Laundry Expert Reviews: The Laundry Lease And Its Effect On The Valuation

Read why longer leases increase the value of a card or coin laundromat when buying or selling a laundry. Chuck Post (Laundry Broker, Consultant at 619-227-5711) expands on the topic of lease structures on the purchase or selling of a laundromat. Laundry sellers and buyers will want to read this.

Laundry Broker Explains Laundry Leases: 4 Big Issues For Buyers And Sellers

Chuck Post (Laundry Buyer Rep, Consultant, Due Diligence) discusses what laundry buyers and sellers should consider when reviewing and considering a laundromat lease. A must read for potential laundry buyers and owner/sellers of card and coin operated laundromats. Reach Chuck at 619-227-5711.

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.

See All News, Tips And Events


Business Purchase Financing SBA Loans
Steve Erlinger Laundromat Broker
Golden State Laundry System Laundry Business Brokers
Health Care Broker Ralph Santos
Facebook
Twitter
Linkedin
Google Plus You Tube
Vlogs and Podcasts


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! 925-785-3118
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2019, All Rights Reserved

               Vlogs and Podcasts  
Join Us On Social Media - Content Updated Daily
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.
Clost Login


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!
Interview: With Chuck Post On How To Buy A Laundry Business Successfully...
Read More News
Laundry Expert Reviews: The Laundry Lease And Its Effect On The Valuatio...
Read More News