BizBen.com
500 New & Refreshed Posts, Postings Daily
Over 8,000 Postings & 2,500 Resources
Assisting Buyers & Sellers Over 25 Years!

Categories

What Do I Need To Disclose To A Prospective Buyer Of My Business?



Posted By: Peter Siegel MBA: BizBen Founder, Lead Advisor.   When selling a small business you always run the risk of a lawsuit. They aren't as common as one may think in this litigious world in which we live in, but whenever there is money exchanging hands & attorneys involved the stage is set for a lawsuit. Various ProIntermediaries share their viewpoints.


Comments & Feedback From Pro Intermediaries & Pro Advisors On BizBen:

When you always run the risk of a lawsuit. They aren't as common as one may think in this litigious world in which we live in, but whenever there is money exchanging hands and attorneys involved the stage is set for a lawsuit.

In an earlier topic we talked about being careful about what you say to a prospective buyer to protect yourself from a lawsuit for misrepresentation. In this post my advice is to be careful about what is not said. The other side of misrepresentation that can land a seller in court is the claim that the buyer was not told about a factor that negatively impacts the business. The buyer might argue that the seller knew about, for example, the impending loss of a major customer, or plans for a larger company to begin competing with the business being sold. And failed to disclose the information. The bottom line regarding misrepresentation and lawsuits is to always tell the truth.

Disclose what needs to be disclosed and don't over sell your business or make false promises or guarantees. Think about yourself as the buyer and tell them what you would want to know yourself if you were in their position.

Contributor: Business Appraisals, Valuations Advisor
First off, the seller must be completely honest with his broker. If there faults the broker can soften their impact by bringing them up early in the selling process.

During due diligence all records and all areas of the business should be open to the buyer. The seller should be eager to provide any information the buyer wants. There should not be a time limit on how long the seller can review the business records. If the buyer wants to go through every file be patient and help him.

It is always wise to have the buyer sign a statement that he was satisfied with the due diligence.

The applicable legal terms are: "reasonable," "relevant," and "material."

The seller must make a reasonable assessment of any and all factors that are material (of significant value or risk) and that are relevant (that relate to the business after the closing) to the transaction, EVEN IF the buyer has not specifically asked the "right question." For example, knowing that the street in front of the store will be closed for repairs for three months shortly after the closing and not revealing that information to the buyer could be both relevant and material. For another example, knowing that the city may be planning on requiring shop owners to display street address numbers of a certain size at some time after the closing may be "relevant", but it is hardly "material." And, for yet another example, if the seller has terminal cancer and there is no significant way this will adversely affect the business after the closing, that health issue is neither relevant nor material and does not need to be disclosed.

In short, this is a "CS" issue -- common sense. If the seller has any doubt or question about material and/or relevant disclosures, this would be a very important conversation to have with an attorney, before entering into contract.

And, then there is the question of "When to disclose?"-- It should be sooner rather than later. Definitely any disclosure should be made during due diligence if known, or as soon as the seller does know if discovered after due diligence. The longer the delay in advising the buyer, the greater the potential damages to the buyer, and the greater the potential liability to the seller.

I agree with Timothy, it is critical to disclose everything about the business to buyer. However, how it is disclosed is as important as what is disclosed. When I take new listings, I really stress the importance of the seller disclosing every possible negative about the business to me upfront. The worst thing that can happen is if the buyer finds something negative during due diligence that wasn't disclosed prior to either the broker or the buyer. It is very hard to regain the trust in the deal if undisclosed information looks like it was intentionally hidden. On a positive note, I have sold many businesses that had issues and it wasn't a problem because of the way it was presented upfront. You are never wrong when you do the right thing.



Place A Posting To Sell Or Buy A Business, Search All Postings


Sell A Business Fast: Place A For Sale Posting Now To Sell A Small Business - 7 Programs To Select From >
Find A Business To Buy Fast: Place A Wanted To Buy Posting Today - Best Way To Find & Buy A Business >
Search Business For Sale & Wanted To Buy Postings On BizBen - 500 New & Refreshed Postings Daily! >

Other Related Blog Posts, Articles, And Discussions You May Be Interested In

Selling A Business 13 Crucial Tips Selling A Small To Mid-Sized Business: 13 Crucial Items To Sell A Business

Only 30% of all small businesses for sale that are put on the market overall are sold! A surprising statistic to most business owners, agents, and brokers trying to sell a small business! If however you follow the strategies (BizBen Protocol Method) in this blog post you should see success!
Due Diligence Gas Station Purchases Buying A Gas Station Business: What To Look For When Doing Due Diligence

Doing due diligence when buying any type of business is extremely important. Regardless of what type of business you are buying there are certain things you will always look at such as, financials, equipment, legal issues etc. We take a look at several angles for optimal gas station due diligence.
Why Many Deals Fail Why Many Deals Fail: Unrealistic High Asking Prices Are Usually The Culprit

The unfortunate truth is that approximately 50% of all small business sales transactions fall through. While failed transactions can happen for a variety of reasons, Peter Siegel, MBA (BizBen Founder & Lead Advisor) discusses the most common reason deals fall through; unrealistic asking prices.
Great Questions To Ask A Seller As A Business Buyer What Questions Should I Ask The Owner, Seller Or Broker?

Asking the seller straightforward questions and getting straightforward answers in return is an important part of the buying and due diligence process. In this Discussion, both ProIntermediaries and Advisors offer thorough questions you should be asking during your meeting with a business seller.
Business Broker Likes Purchase Agreements Advantages Of An Asset Purchase Agreement (Contract) Over A Letter Of Intent

An LOI may very well be appropriate for lower middle market transactions of $5,000,000 or more; but, for deals less than that an Asset Purchase Agreement ("APA") with contingencies on the actions of the buyer (and seller) is much more efficient & effective. Tim Cunha, JD (Business Broker) explains.
Sellers Discretionary Cash Add Backs Add Backs: Defining Sellers Discretionary Cash When Buying A Small Business

The use of add backs & sellers discretionary cash is common among sellers of businesses when showing their financial information & explaining that the buyer will actually enjoy more profit than is shown. But buyers are cautioned to review documents closely. Peter Siegel, MBA with BizBen explains.
How To Buy A Dry Cleaners Finding A Dry Cleaner Small Business For Sale That Will Be A High Performer

Before you buy a dry cleaners small business, read these critical tips about this industry. Discover why a dry cleaner needs to be "green" to be profitable. Peter Siegel, MBA (BizBen ProBuy, ProSell Program Advisor) explores this topic and other helpful strategies on buying a dry cleaning store.
Business Buyer Feedback On Postings 8 Items Buyers Of Small Businesses Find Critical When Reviewing Businesses

In this month's Business Buyer survey for BizBen.com, we asked participants in our ProBuy Program and 250 other random business buyers what they look for and avoid when looking at a business for sale postings online. Of the 20 potential posting characteristics we asked about, 8 stood out with most.
Are Upfront Fees Worth It In Defense Of Upfront Broker Fees: Why Owners Should Pay Brokers Upfront

Are up front fees worth it? In this BizBen Blog post Brian Loring (Business Broker) discusses the pros and cons of owners of small businesses paying business brokers and agents an upfront fee for their services. There are many sides and opinions expressed on this topic by both sellers & brokers!
Buying A Business Without Financials Business Seller Doesn't Have Recent Financial Figures: What Should I Do?

The owner selling the business doesn't have recent financial information or documentation but insists revenues are increasing. Should buyers believe the seller? What should buyers do in this situation? ProIntermediaries on BizBen answer the question of verifying seller/owner's financial claims.