Yesterday, I was reviewing a buyer’s signed purchase contract. He came to me after signing it, as his agent had said he should. His agent said he needed to hire someone to do the due diligence on the business. When I read the contract, I was shocked.
It turned out, in layman’s terms; the contract stated that the buyer was agreeing that:
- All paperwork had already seen
- What he has seen already was all that he was agreeing to be getting.
- The due diligence investigation time period had ended.
- Due diligence was approved because it was not disapproved, prior to signing this contract.
- Regardless, if he asked for more paperwork or not, if the buyer backed out he lost his deposit.
This was the most restrictive and dangerous contract I’ve seen in a long time. It makes any kind of real due diligence impossible, of course, since the buyer had already waived his rights to back out of the deal. The author of this contract was a dual agent.
Definition of a dual agent
Dual Agency in a real estate transaction means the listing broker represents both the seller and the buyer. A dual agent must not disclose confidential information to either party and must operate in a hands-off manner. A dual agent cannot get the highest price for the seller and the lowest price for the buyer — it is impossible. (Definition provided by about.com)
From what I’m seeing, dual agents are getting more aggressive these days in this market. This is especially true of putting clauses in the contracts that are getting increasingly seller-oriented and box the buyers into corners, more than I’ve seen before. The dual agent is not always providing the legally required dual agent notifications that are given to buyers.
As the business buyer, you’ve got the upper hand, so please act like it. Get your own agent, who is not also your seller’s agent, and get your full due diligence done before releasing your due diligence review rights. And for the sake of your own easy life later on, don’t sign what you haven’t thoroughly read.
Please, do yourself a favor and don’t sign any paperwork, for a business, without reviewing what you’re signing, and making sure that due diligence or getting your deposit back aren’t going to be impossible.
Call me if you have questions, I’m glad to consult.
Creative Commons Attribution: Permission is granted to repost this article in its entirety with credit to Business Buying Services and a clickable link back to this page.
Get Rich While Going Green and Saving Your Dollars
/in Business Buying/by Willard MichlinGoing Green helps the earth and saves you money.
So how do we do that? This is a very interesting subject. The “Green Environmentalists” are designing and building new low energy use buildings. Because of the three year draught, they are also recycling water and reducing energy use.
Congress passed a law subsidizing solar generated electricity.
You can also buy electricity from independent utility companies who are selling electricity at a discount. Let us not forget solar water heaters.
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Dual Agent or Get Your Own? A Changing, More Aggressive Business Buying Market…
/in Business Buying, Business Due Diligence Horror Stories, Due Diligence/by Willard MichlinYesterday, I was reviewing a buyer’s signed purchase contract. He came to me after signing it, as his agent had said he should. His agent said he needed to hire someone to do the due diligence on the business. When I read the contract, I was shocked.
It turned out, in layman’s terms; the contract stated that the buyer was agreeing that:
This was the most restrictive and dangerous contract I’ve seen in a long time. It makes any kind of real due diligence impossible, of course, since the buyer had already waived his rights to back out of the deal. The author of this contract was a dual agent.
Definition of a dual agent
Dual Agency in a real estate transaction means the listing broker represents both the seller and the buyer. A dual agent must not disclose confidential information to either party and must operate in a hands-off manner. A dual agent cannot get the highest price for the seller and the lowest price for the buyer — it is impossible. (Definition provided by about.com)
From what I’m seeing, dual agents are getting more aggressive these days in this market. This is especially true of putting clauses in the contracts that are getting increasingly seller-oriented and box the buyers into corners, more than I’ve seen before. The dual agent is not always providing the legally required dual agent notifications that are given to buyers.
As the business buyer, you’ve got the upper hand, so please act like it. Get your own agent, who is not also your seller’s agent, and get your full due diligence done before releasing your due diligence review rights. And for the sake of your own easy life later on, don’t sign what you haven’t thoroughly read.
Please, do yourself a favor and don’t sign any paperwork, for a business, without reviewing what you’re signing, and making sure that due diligence or getting your deposit back aren’t going to be impossible.
Call me if you have questions, I’m glad to consult.
Creative Commons Attribution: Permission is granted to repost this article in its entirety with credit to Business Buying Services and a clickable link back to this page.
Why Are You Doing Your Auto Body Shop Work for Nothing? A Battle Plan for Raising Your Rates
/in Articles, Specialties/by Willard MichlinIn my 15 years as a body shop broker, I have visited hundreds of body shops across the state. Almost 100% of the owners complain that, if they are being honest with me, they work too hard for too little money. They want to sell their body shop business to some other poor sucker who will run into the exact same problems.
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Business Buying Horror Story: Floral Wholesale – The Seller Misrepresented Everything
/in Business Due Diligence Horror Stories/by Willard MichlinFlorist Business Due Diligence
Floral Wholesale – Riverside, California: Some months ago a San Diego Police Officer in the process of purchasing a business (for his wife) retained Due Diligence expert Willard Michlin of Southern, California to assist him in determining if the seller of Floral Wholesale was accurately representing the profitability of the business. The asking price for the business was $350,000. The Listing Agent and the Seller represented that the business was clearing a $130,000 profit.
Mr. Michlin, within three hours of visiting the business determined that the business was making no more than $15,000 per year and even that number was based on documents being incorrectly reported to taxing agencies. Read more
Avoiding Fraud When Buying a Franchise Business
/in Business Buying, Due Diligence, Profitability Analysis/by Willard MichlinDo You Think You Do Not Need Due Diligence When Buying a Franchise?
Opening up a new franchise location can cost upwards of $250,000. This is a lot of money for a business buyer to invest in a new unproven location.
New investigative reports are now stating that the selling of new franchise locations is where the real profit is earned by franchisors, rather then as previously believed on the 5% franchise fee paid from the sale of product. The franchise sales staff earn a large chunk of the $30,000 plus franchise fee charged. Plus the company makes a profit on the construction costs of the new store.
Many people have the idea that our government’s registration rules exist to protects the consumer from being cheated. In truth it has made the problem worse. Read more
What You Need to Know to Value an Auto Body Shop
/in Business Buying, Business Valuation TIps/by Willard MichlinWe have developed a comprehensive questionnaire in order to help you determine the value of an auto body shop before purchasing it.
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Due Diligence Analysis: The Iron Works Story
/in Business Buying, Consultants, Due Diligence/by Willard MichlinHow much error can a buyer expect from a seller’s financial reports? A due diligence investigation will help you discover all you need to know.
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Why Don’t More People Buy Businesses?
/in Articles, Business Audit Tips, Business Buying, Business Due Diligence Horror Stories, Newsletters/by Willard MichlinWhy More People Do not buy a business?
Introduction
You may not believe what they say yourself, but if you have been in the business of buying businesses for a long time you’ve heard someone repeat this time worn statement.
“One in 14 buyers actually buys a business.”
The business brokerage industry throws around this number all the time.
This “1 in 14” number (or only 7% ) is based on statistics gathered from some old-time brokers. They must have actually kept track of how many buyers called their firms versus how many deals they closed. We can’t know how well they tracked this info, or where this data originated from. But, thankfully, the actual number is not the important part. For the sake of solving the problem, we just need to see that it’s low, and really could be better.
Here’s why that number stays so low…
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The Best Way to Find the Right Business for You
/in Business Buying, Business Buying Troubleshooting/by Willard MichlinThe time to get advice is early in the game, not after you have signed a purchase agreement and suddenly find that you have only 10 days to complete all due diligence
Many people look for a good, profitable business of any type. That makes sense… or does it?
People such as this are not picky as to the type of business as long as it makes money. Using this technique it is very common to look at a hundred businesses and even then to find out – after hours and hours of research – that what you learned did not agree with what you were told. Such an approach is one way to go about it. Read more
Trouble Shooting Your Business Buying
/in Business Buying Troubleshooting/by Willard MichlinBeing able to trouble shoot a problem is an art that must be developed.
Though there are those who think they are naturally good at it. There are a very small number of business schools that actually train you in the art of doing this, I only know of one. Read more