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|
|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.
|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.
|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.
|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.
|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.
|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.
|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.
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