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How To Avoid A Fatal Mistake When Selling Your Business


Mistakes When Selling Your Business

Every business owner wants to portray the best aspects of their business to a prospective business buyer because they want to get the absolute highest price possible. There is nothing wrong with this and in fact, your business broker is doing his/her best to show your business in the most favorable light as well.

However, one of the most fatal errors a seller can make is to answer a direct question from a prospective buyer with a vague or nebulous answer, or even worse, to blatantly lie to the buyer. Savvy buyers realize that when the seller’s responses are vague, s/he is hiding something and lies are almost always revealed during due diligence.

After an business purchase agreement / offer has been negotiated between buyer and seller and an agreement has finally been reached, the due diligence begins. Most buyers are going to dig a little deeper into all of their initial questions. They are looking for verification that the answers provided were accurate. If they discover the seller was less than truthful about the business during the initial negotiations, most buyers will terminate the transaction and walk away.

I have heard of business buyers walking away from deals due to:

1) The seller was not licensed properly to conduct the business he was conducting. Furthermore, a license could not even be obtained for the business location in which the business was operating because it violated city ordinances.

2) The seller represented he had been working with certain clients for years when those clients had literally been obtained only a month or two earlier.

3) A seller stated to the buyer that he had a wide diversified client base when in fact one client represented over 60% of his sales.

When a buyer walks away due to a seller's misrepresentation, the business, if it is salable, generally sees a price reduction. There may have been lost opportunities with other prospective buyers because they didn’t want to make an offer on a business that was already under contract. And, in the end, if and when the business sells, the seller generally receives less than s/he would have if s/he had just been honest with the buyer(s) and broker(s) in the first place.

As a business owner, if there is anything about your business that you believe will negatively impact the sale or sales price/valuation, discuss it with your broker. Together you can determine how to disclose it in a manner that will be advantageous instead of trying to hide it, just to have it come back and bite you. Every negative can be turned into a positive if you just take the time to be creative and think it through.

When it comes to communicating with business buyers, honesty truly is the best policy. Anything less will most likely be fatal to your transaction.

I would also like to hear about any experiences you have had with seller mistakes when selling a business - both fatal and not so fatal. Please provide your comments below and reply to other comments by others with your experiences.

Peter Siegel, MBAAbout The Author: Peter Siegel, MBA is the Founder And Administrator of BizBen.com (established over 20 years!) and is a Business Purchase Financing expert (SBA and Non-SBA financing). He consults daily with California business buyers, owner/sellers, business brokers, and agents regarding buying and selling California small businesses. Call him today regarding advise on finding, buying, selling, financing a business purchase/getting pre-qualified (ask about the BizBen ProBuy and ProSell Programs for business buyers and owner/sellers, and brokers). He'll also give you referrals to the best resources on buying and selling businesses, brokers, etc and a FREE copy of his eBooks "How To Find And Buy A California Business Successfully" or "Valuing And Selling A California Business Successfully" with any personal consulation/service. Peter Can be reached direct at 866-270-6278 (if you get voicemail please leave some good times to reach you and a detailed message - thanks).


Categories: BizBen Blog Contributor, Deal And Escrow Issues, How To Sell A Business, Selling A Business


Comments Regarding This Blog Post


I had a situation where I was selling a liquor store, and the buyer had approved the books and records and was ready to go to escrow, but right before they did, they happen to call the watch commander of the local police department to check on local crime, and found out that THAT particular store had been held up 4 times in the last year. The buyer realized that the store was involved in an armed robbery every 2.5 months, and the seller had not disclosed this, but they were still interested in pursuing the deal if the seller paid for bullet proof glass at the register, which was going to cost about $10,000. The seller balked, and the deal didn't go through. Not disclosing the robberies, and the buyer going through with the deal, could literally have been a "fatal mistake."


The "fatal mistakes" goes on and on. In my experience, among the "surprises" I have encountered from less-than-transparent sellers:

1. Key expenses of the business being paid in cash by the owner personally, thus greatly diminishing the actual profit of the business.
2. Financial records being totally unsupportable by actual bank statements.
3. "Proprietary" intellectual property, processes, designs, and procedures, not being proprietary at all.
4. Key employees who are planning to leave right after the sale -- and the seller knows about it but doesn't advise the buyer.
5. Key customers who have already indicated that they are going to a new supplier, but the seller keeps this a secret from the buyer.
6. Existing, pending, and/or threatened law suits and regulatory actions.
7. Known workplace safety and health violations.
8. Criminal convictions affecting the business value and operations.

It is virtually impossible to get a second chance at making a good first impression. Honesty IS the best policy, especially when selling a business. Without the buyer's trust and confidence in the seller, there will be no sale. Or, if by some chance there is a sale, it will all end up in court within a year.


  Helpful Resources To Assist In Selling And Buying California Businesses
Joe Sandbank, Esq. - Legal Services

I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.

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 805-428-2063.

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.

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.

Brad Steinberg, Broker - Laundromat Specialists

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

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.

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.

Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers

I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.


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Why Isn't My Business Selling? 6 Great Questions To Ask Yourself For Answers

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

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Unreported Income: Should Sellers Disclose Unreported Cash To Buyers?

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