What I see is that more buyers are becoming motivated to buy than they were earlier.
Earlier there was a fear that the economy might worsen after a purchase was made. That fear has subsided because of the positive news about the stock market and economic indicators both which have indicated the worst has past and we moved out of the recession. My personal opinion about the direction of the economy does not necessarily agree with the indicators but that is not what we are addressing here.
The Truth will Help you Sell Your Business
The other motivation moving buyers is that they have been looking at businesses that are on first inspection appear to be viable and upon due diligence are not. Buyers are highly motivated to buy because they are eating up their savings while they are looking for a business which they can not find. If sellers would honestly present their business up front, more businesses would be purchased. Buyers want to buy and want to feel comfortable about what sellers provide. They need a level of trust with the sellers or they will not believe anything they are told and will just walk away rather than offer a more realistic price.
Shop for Today’s Market
I do not anticipate an increase in listings coming on the market because the profitable businesses will hold on until the market gets much better and they can get a much better price. The motivated sellers already on the market, are hoping to sell based on 2008 numbers and in some cases 2007 numbers. They tell buyers that things will be better soon and that the buyers should buy now before the market gets better at values based on the better market. Of course, if the sellers are wrong, and the market doesn’t get better, the buyer would have overpaid and would then find themselves in the situation the seller is currently in.
Both buyers and sellers should be very honest with each other, because if they are not, it causes law suits and divorces. A buyer’s mistake can easily cost him $100,000 and his life savings and his marriage. Caution is the watch word today.
Due Diligence Defined: The phrase is composed of two words. Due, which the dictionary defines as “proper or adequate”, and Diligence, which is defined as “Degree of care or caution expected of a person. Especially as a party to an agreement.” Caution: is the watchword in this definition.
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.
Business Buying Horror Story: Auto Parts – She Failed to Do Due Diligence
/in Business Due Diligence Horror Stories/by Willard MichlinWholesale Auto Parts Distributor: L.C. decided she wanted to own a business that would pay her at least $10,000 per month profit. She looked around and found an auto parts distributor that sold auto repair parts to mechanics. The business was located in an industrial neighborhood where many Auto Mechanics were located but not where there might be any retail customers. She was told the business was doing $70,000 per month in sales and producing a $15,000 per month profit. She was also told there was $300,000 in inventory that no one had verified. She paid $600,000 cash for this business and then paid the seller $25,000 for the $30,000 accounts receivable, outside of escrow, which she is told is current and collectable. Read more
Why you need someone watching your back: The Painful Truth About Business Due Diligence
/in Business Due Diligence Horror Stories/by Willard MichlinI had a business buyer contact me to do a business analysis/due diligence. He had already signed an offer, signed the escrow instructions, and sent a large check as a deposit to escrow. I never saw any documents until after the deal blew up. Read more
Business Valuation – Typical Trick
/in Articles, Business Buying/by Willard MichlinI noticed a trend about 20 years ago. The trend went from undeclared cash payroll to employees being declared on the business books. It started with automotive businesses and then moved into restaurants. It now can be found in many industries. The construction industry still has not caught on to this interesting trick yet. They still operate on many undeclared cash wages. Read more
How to Evaluate the True Worth of a Business: Adult Day Care Centers
/in Articles, Business Valuation TIps/by Willard MichlinBusiness Evaluation Case Study – Adult Day Care Centers
Is the claim that there is big profit in Day Care Centers, too good to be true?
Are Adult Day Care Centers making the big money they claim?
Last year I was asked to do a business evaluation and financial review of an Adult Day Care Center in Ventura County and render an opinion as to the profitability and viability for a client wanting to buy this business for the full asking price or for any other price. I was told before I began, that it was clearing $50,000 per month profit, and the asking price was $3 million.
Read more
Business Buying Advice: Do you want to buy the seller’s corporation?
/in Business Buying/by Willard MichlinWhen you buy a seller’s corporation, few to none of the benefits accrue to you but there are a lot of negatives. Lets start with the benefits.
When you buy stock in a corporation you lose tax benefits plus take the assumption of all liabilities known and unknown, and warrantee claims that may come in after the purchase.
It is common to find out that a corporation owes taxes that were not disclosed or known at the close of escrow.
Payroll taxes, sales taxes, and income tax can show up years later and the corporation is responsible to pay them. Even accrued vacations are a liability that a buyer and seller may not even think about. You inherit the corporation’s workers compensation policy history –good or bad. There are too many contingent liabilities that no one is aware of when taking over a corporation.
Taking over a corporation is also a very poor income tax move. You cannot take depreciation on the assets of the company you bought. You must continue the greatly reduced depreciation that the corporation already was taking. Only when you sell the corporation’s stock do you get the benefit of writing off what you paid for the company. The tax consequences alone are enough to avoid buying a seller’s corporation.
The only time you should ever consider buying the corporation is when there is a government license (like a recycling license) or customer contracts (like an insurance contract for body shops) that are in the corporation’s name. Then you might have to buy the seller’s corporation. It is much better to apply for a new license in your name as buyer and borrow the seller’s corporation only until that new license comes through. The seller’s corporation would not have any assets in it by that time because you bought all the assets out of the corporation at the close of escrow.
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.
Image credit: monkeybusinessimages iStock
Business Buying Pitfalls: Why aren’t business buyers making more deals?
/in Due Diligence/by Willard MichlinWhat I see is that more buyers are becoming motivated to buy than they were earlier.
Earlier there was a fear that the economy might worsen after a purchase was made. That fear has subsided because of the positive news about the stock market and economic indicators both which have indicated the worst has past and we moved out of the recession. My personal opinion about the direction of the economy does not necessarily agree with the indicators but that is not what we are addressing here.
The Truth will Help you Sell Your Business
The other motivation moving buyers is that they have been looking at businesses that are on first inspection appear to be viable and upon due diligence are not. Buyers are highly motivated to buy because they are eating up their savings while they are looking for a business which they can not find. If sellers would honestly present their business up front, more businesses would be purchased. Buyers want to buy and want to feel comfortable about what sellers provide. They need a level of trust with the sellers or they will not believe anything they are told and will just walk away rather than offer a more realistic price.
Shop for Today’s Market
I do not anticipate an increase in listings coming on the market because the profitable businesses will hold on until the market gets much better and they can get a much better price. The motivated sellers already on the market, are hoping to sell based on 2008 numbers and in some cases 2007 numbers. They tell buyers that things will be better soon and that the buyers should buy now before the market gets better at values based on the better market. Of course, if the sellers are wrong, and the market doesn’t get better, the buyer would have overpaid and would then find themselves in the situation the seller is currently in.
Both buyers and sellers should be very honest with each other, because if they are not, it causes law suits and divorces. A buyer’s mistake can easily cost him $100,000 and his life savings and his marriage. Caution is the watch word today.
Due Diligence Defined: The phrase is composed of two words. Due, which the dictionary defines as “proper or adequate”, and Diligence, which is defined as “Degree of care or caution expected of a person. Especially as a party to an agreement.” Caution: is the watchword in this definition.
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.
Image credit: Purestock
Business Buyer Mistakes: Are the “Top 10” Businesses to Buy Really Tops?
/in Business Buying, Business Valuation TIps/by Willard MichlinRecently, I was sent a report of, “Which Business Types Were The Top Sellers,” based on the information provided by one of the top business-for-sale web sites, in the world. Read more
Business Start-up Advice: How to Start Your Own Business and Be Successful
/in Business Buying/by Willard MichlinIn the Rodgers & Hammerstein movie and play ‘South Pacific’ there is a song called “Happy Talk”The words to that song go something like this (feel free to sing along if you know the tune):
Read more
Business Buying Horror Story – Hair Salon, Due Diligence Requires Real CPAs
/in Business Due Diligence Horror Stories/by Willard MichlinSalon Business Due Diligence
In most of my writing, I talk about fraud and misrepresentation by sellers to buyers. I have come to realize that the problem is much deeper than I thought. The buyer’s and business names below are real.
Dr. Charles Partito is an experienced business buyer. He reports that he has bought eight businesses over the years. Of those, five of the purchases were what he expected and paid for. Two of the three bad deals, he had hired a professional to assist with due diligence, but he did not get what he thought he was paying for. Read more
Business Buying Pitfalls: How Does Unrecorded Cash Sales Affect a Business’s Bottom Line?
/in Business Buying/by Willard MichlinWhen a business sells a product or service and doesn’t declare the income on its financial statements, you might assume that if you add that same amount to the owner’s profit at the bottom of the profit and loss statement you will have an accurate number. The truth is that when you change the gross income or gross sales number other numbers are also changed.
The sales tax expense number also goes up. Part of that cash, not declared, belongs to the State Board of Equalization as sales tax collected and not paid.
Business Taxes Vary from City to City
In some cities the business tax is tied to the gross income. So when you have cash income not declared the tax would be higher. I am a member of the Southern California Business Brokers Association. One of our members moved out of Los Angeles because the city sent him and his agents tax bills totaling over $60,000, because his firm earned real estate commissions in the City of Los Angeles. The city of Oxnard did the same thing to a broker based in Westlake Village that sold a business located in Oxnard. They wanted $5,000 as a city license tax for doing business in Oxnard.
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.
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