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.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA
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.
|Shalonda Chappel: Escrow & Bulk Sale Services - Southern California
Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.
|Janet Carrera: Escrow & Bulk Sale Service - 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.
|William F. Ziprick, Attorney: Legal Services For Buyers And Sellers
Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.
|Helen Yoo, New Century Escrow - Escrow Services In 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 - San Francisco 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, Business Broker: Laundromat Specialist
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.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
|What Should I Do If Other Buyers Are Trying To Buy The Same Business As Me?
Buying a small business is hard enough when there is no competition, so how might a buyer navigate the process when there is additional competition from other buyers? Potential small business buyers are offered a few key ways that a buyer can beat out other potential business buyers in this article.
|Who Really Represents The Business Buyer In A Deal? Does Dual Agency Work?
Who really represents the buyer? The selling broker or agent through dual agency? Many brokers and agents weigh in on this Discussion on BizBen. Bottom line is all business buyers need to know who really represents them and has their best interest at heart when seeking and negotiating on deals.
|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 925-785-3118 shares his views of getting SBA loan financing faster for business purchase financing.
|Pricing A Small Business For Sale - Several Factors Play A Valuation Role!
As an Advisor On BizBen I talk to many California business owners, business buyers, brokers, and agents on a daily basis about valuing California small to mid-sized businesses. Many key factors go into this analysis including market demand, history of earnings, and even how the deal is structured.
|Financing Advice: Showing Add Backs To Get Business Acquisition Financing
When seeking business acquisition financing, it helps to review a seller's addbacks as a source of funding to service the debt service. But explain them correctly. Peter Siegel, MBA business acquisition financing expert and advisor at 925-785-3118 covers this topic on financing a business purchase.
|Coronavirus: Advisors Discuss The Topic - Buying & Selling Small Businesses
During this time period of being "sheltered in place" we discuss strategies, best practices that business buyers, business brokers, agents, and owner/sellers are practicing or thinking about during these times of being immobilized. Also discussed are business types that may be good purchases.
|What Are Business Buyers Biggest Mistakes? The Pros Examine The Most Common
A business buyer in our ProBuy Program searching to buy a California business asked me to sum up what I though the biggest mistakes business buyers make when they search for and bought a small business. I asked BizBen ProIntermediaries their thoughts on the matter and received a diverse response.
|5 Myths About Selling A California Business: Best Tips For Sellers & Brokers
Peter Siegel, MBA (at 925-785-3118) - BizBen Director discusses myths associated with the process of selling a business and some of them can actually cause deals to fall through. Don't let your sale be comprised, be aware of these common misconceptions related to the process of selling a business.