One of the major challenges faced by someone showing his or her business for sale in California is the appearance of people claiming to have the interest and the money to buy, but who actually are not qualified buyers. Because they waste so much of a seller's valuable time, and can compromise the selling effort by violating the non-disclosure rules, it's important that a seller avoid trying to work with these unqualified buyers. In order to do that, of course, it's necessary to know how to identify a time-waster, and to separate the unqualified from qualified buyers.
Surprisingly, some people make it a hobby to look at businesses offerings but with no intention of buying any business. They might ask intelligent questions, even show a financial statement that suggests they have the resources needed to make the purchase. And they often state an interest in making the purchase. But once bored with learning about one kind of business, the so-called buyer will start investigating something else. The seller who spent time, and opened his books to a pretend buyer will get nothing but a sense of confusion about why the buyer disappeared, and disappointment that no sale resulted from all of the time and effort.
More dangerous than phony business buyers are those who might like to purchase a business, but not at all the way the owner wants to sell it. These leverage artists and con men and women might go out of their way to impress and to charm a seller, perhaps take him out to dinner and repeatedly compliment him on the state of his business. But their real agenda has to do with striking a deal that enables them to "try out" or "lease" a business, or to purchase it with no money down. People like this may claim to be financially qualified, and in fact might have the cash needed to make the purchase, but their objective is to buy your business with your money.
Even experienced business sales intermediaries can be fooled from time to time by a time-waster who does a good job of acting like a real buyer. Still, there are some common things to look out for when showing the business. Identifying someone who is not a real and serious buyer when first meeting him or her can save a seller considerable time and aggravation.
Some ways that an unqualified business buyer might reveal that he or she is a phony, include:
1. Refusal to provide a financial statement and resume at, or prior to the first meeting. Or refusal to sign a non-disclosure before learning the identity of the business being offered.
Exchange of basic information is a standard practice in California when a business is being introduced to a prospective buyer, whether by a broker or the owner. That means the buyer learns the name and general information about the business, perhaps including some financial performance results, and the seller or licensed intermediary receives a signed disclosure form, personal financial statement and resume from the buyer. This exchange of information and documents usually takes place before any important discussion begins. Just as a buyer claims the right to see some information concerning the business about which he or she inquired, the seller has a right to know with whom he or she is dealing.
Refusal of a buyer to cooperate may take the form of an excuse such as "I won't disclose any information about myself unless I am interested in this business, so first, give me the details about what is for sale. If I'm interested in pursuing this further, I will supply personal information." Or words to that effect. This lack of cooperation with accepted practice is a warning that the buyer is not willing to play by the rules and may not be qualified to buy the business.
Another excuse: "Don't worry, I have plenty of money," might be acceptable if you recognize the interested party from photos you've seen of Bill Gates or Warren Buffet. Otherwise, you have no way of knowing whether the prospective buyer has any money to make the purchase. That's when the discussion should end.
Some sellers require a prospect to bring a letter from his or her bank's officer attesting to the fact that the individual has money in the bank. Such a letter should state the approximate value of the account, and point out how long the sum has been in the account. The reason for this requirement, obviously, is because a financial statement presented without verification that it is authentic could contain completely false and misleading information.
2. Questions about "alternative" ways of selling the business. A buyer might be open about her intentions and ask something like: "Have you considered leasing the business with an option to buy?" Or the questions and comments might be much more subtle such as a statement like: "This business will take a lot of cash to run. Maybe you should take a note for the full purchase price so a buyer can use his money to finance operations and growth." Another popular question is whether the seller is willing to co-sign with the buyer for the loan the buyer will need so he can give the seller a down payment.
An alternative way a buyer might approach this subject is by telling a story about a friend or acquaintance who, for example, bought a company in a "creative" way and made the business so successful that he could afford to pay the seller a bonus.
It's a good idea to be suspicious of any buyer who mentions a business transfer that does not correspond pretty closely to the asking price and deal structure presented by the seller.
3. Indications that a buyer is making false or misleading statements. In other words, catching the pretend buyer in a lie. A machine shop owner discussed his business with a prospect who claimed he was experienced in the industry. But the questions the buyer asked and the way he look puzzled when viewing the equipment, made it clear to the seller that this guy had no idea about the business. If the buyer tells you one lie, the chances are good that any statement about his or her interest in the business and willingness to observe guidelines suggested by your price and terms, is almost certainly a false statement.
Related to catching a buyer in a lie, is getting the "feeling" that a buyer is not what he pretends to be. Some individuals have a sixth sense about people and can usually tell when someone is not sincere or authentic. If you don't have that talent, watch closely for clues that the buyer is not who she or she represents. An ad agency professional shouldn't have dirty fingernails unless his hobby is rebuilding auto engines on weekends. The "buyer" who claims to have just sold a big business for a lot of money, is unlikely to pull up to the curb in a fourteen-year-old mid-priced sedan with a broken headlight and missing fender.
The seller of a business should make it the first priority to know with whom he or she is dealing before spending time and sharing proprietary information with a prospective buyer. The place to start is by observing these three suggestions. The consequences of lost time and heightened aggravation that results from dealing with unqualified people can discourage an owner from ever selling the business.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|William Park, Business Broker: Southern California
Highest Volume Broker in California, Simply Check our HUNDREDS of Listings! Over 25 Associates, Speaking Dozen Languages, Helping Buyers and Sellers of Small Business since 1982, Centrally Located between Los Angeles and Orange Counties, while Riverside & San Bernardino Counties are Very Accessible.
|Steve Zimmerman: Restaurant Broker Specialist, California
Steve founded Restaurant Realty in 1996. He has personally sold/leased over 1000 restaurants, bars & clubs, & completed over 3000 valuations. The author of "Restaurant Dealmaker- An Insider's Trade Secrets For Buying a Restaurant, Bar or Club" available on Amazon. Reach Steve direct at 415-945-9701.
|Joanne Weber, Broker: Preschool Specialist, Southern California
The Ryan Craig Company is in its 46th year as the recognized expert in Southern California, dealing exclusively in the sale of preschools, Montessori schools, day care centers, and private schools. Our extensive list of references speaks for itself. Phone Joanne at 818-760-3684 for more info.
|Jack Oh, Business Broker: Southern California
Business broker and real estate services in the Los Angeles and Orange County areas. 10 years experience with great negotiating skills. To sell a business or buy a business in the LA or Orange County Areas phone Jack and his team at 562-787-4989 Cell / Text.
|Prabhjot Randhawa, Broker: SF Bay Area, Central Valley
I'm a Business Advisor at Liberty Business Advisors of San Francisco. 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. 209-815-3842 Cell.
|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.
|Harry Sidhu, CBB, Broker: SF Bay Area, Central Valley, SAC Region
Assisting both sellers and buyers of businesses - dealing mainly with Liquor Stores, Grocery Markets, Gas Stations, Smoke Shops, Restaurant Related, Retail Related, Service Related. Serving SF Bay Area, North Bay, Sacramento area. Call Harry Sidhu, CBB for assistance at 510-366-6130.
|AJ Rana - Business Broker, San Francisco Bay Area
Professionals who understand the importance of world class business brokerage service and the value it can create. Specializing in assisting sellers and buyers with retail stores, restaurants, hospitality & lodging, manufacturing operations, distribution companies, e-commerce and service businesses.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
|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.
|Selling A Laundromat? Top Tips: Valuation, Pricing, Finding Buyers, Resouces
Laundrys are popular choices among business buyers as they often can be successfully run as an absentee run business. You need to be strategic about when you sell your Laundromat so you don't get taken to the cleaners! Peter Siegel, MBA (at BizBen) provides laundry purchase financing - 925-785-3118.
|Buying A Restaurant With Financing: 5 Options For Restaurant Business Buyers
In this Discussion, Peter Siegel MBA (Business Purchase Financing Advisor at 925-785-3118) 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.
|Buying A Restaurant: 5 Myths Restaurant Buyers Should Know About
Jeff Back, Restaurant Broker & Consultant in the SF Bay area discusses myths about buying restaurant small businesses. It's not what you have been told. He includes 5 myths of the most frequently sited principles for success that are simply myths when examined over decades of his experience.
|Buying A Restaurant Can Be Challenging: 3 Key Tips For Restaurant Buyers
People always need to eat; there should be plenty of business. Some restaurant buyers think there is prestige to owning a popular eating establishment. But it isn't an easy business purchase. Peter Siegel, MBA (BizBen Founder, ProBuy & ProSell Program Director at 925-785-3118) reviews this topic.
|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.
|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.