Due Diligence Case Study

Due Diligence Case Study: Poor Bookkeeping Leads to Confusion

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This is a true story of one of my due diligence assignments regarding a thief operating from within a tree trimming and landscaping company in Northern California.

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Finding Out the Seller’s Motivation

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What Motivates a Business Seller?

When working with buyers as a business broker and a CPA doing due diligence, the buyers universally ask one question. “Why is the seller getting out?

This is a good question but the question I ask is, “How do you know if the seller is telling you the truth?” Read more

Business Valuation Pitfalls: What is the True Worth of a Business?

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I am often asked how can we determine the true worth of a business.

The first step to this process requires determining the actual profit of a business in the current market conditions.  The second step is to create a value for the current income stream assuming it continues into the future or you may want to look at the profit potential of a business not based on the current business activities.

What is Seller’s Discretionary Income?

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Purchasing An E-Commerce Business – 4 things You Must Know

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Purchasing An E-Commerce Business – 4 things You Must Know

Today I received the Business Broker Press© release of the ten top selling businesses. At the top of the list was E-Commerce. E-Commerce refers to web based business that sells products online. This can be anything from cosmetics and clothing to automobiles and dating services to meet the future mother of your children.

Up until World War II middle America bought its products primarily from the small merchants in town. Then after the war the Big Box stores started. When the internet became popular the trend away from people making their retail purchases from “brick and mortar” store became more and more popular. Read more

The 6 Key Items Influencing a Company’s Value with Two Working Owners

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The key issues that influence a company’s value when there are two working owners:

1.    What is the profit level of the business after allowing for the second partner’s salary Sellers Discretionary Earnings (SDE)?

2.    Do a few customers dominate the sales?  I see some great companies where one customer is over 50% of the sales volume. In this case if the biggest single customer left, the company’s value would collapse? Read more

Business Buying Tips: Where do you find the right business to buy?

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The first step in locating a business to buy is to decide what type of work you are interested in and what you are definitely not interested in. This makes the first step, going out in the world and making very complete lists of possible kinds of businesses available to you. Do not put owning a scuba diving shop on the list if you do not swim.

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Fast Food Business Ownership: Making a Fast Food Business So That It Virtually Prints Money

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  Fully half of all the businesses that are sold are retail food storefronts. This includes franchise, non-franchise, sandwich shops, bagel shops, coffee shops, as well as good old fashioned sit-down restaurants. Half!

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Who Can You Trust to Loan Money To?

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True Story:

Glynn was a nice guy who was given $500,000 by his mother to buy a business, since his photography business went into the toilet. The money was burning a hole in Glynn’s pocket.

One evening Glynn met Joe at a local networking group. They started spending time together and became casual friends. Joe told Glynn he was an entrepreneur who owned different successful business in town. At least that is what he said.

One day, Joe told Glynn that he was opening a taco restaurant with two experienced restaurant partners. The business needed a taco machine with cost $10,000 and Joe was tight on cash. He asked Glynn to make a loan, secured by the taco machine. He would pay 10% interest-only payments for one year. Read more

Get Rich While Going Green and Saving Your Dollars

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Going 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…

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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:

  1. All paperwork had already seen
  2. What he has seen already was all that he was agreeing to be getting.
  3. The due diligence investigation time period had ended.
  4. Due diligence was approved because it was not disapproved, prior to signing this contract.
  5. 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.

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