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
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
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:
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.
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.
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
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.
Don’t let your business purchase lead you into becoming the victim of white-collar crimes. Find out more from our business buying experts.
Pet Business Due Diligence “Bill” and his family were looking for a dog kennel and went on to the internet and started looking at various “Businesses for Sale” web sites. He located a dog kennel for sale with real estate in another state. Bill and his family had experience with boarding animals so it seemed the perfect business.
Henry is an educated businessman. He has real estate license but wanted to find a method of earning extra income. He has been looking at various businesses. He was now interested in a Laundromat. He collected the necessary preliminary information and sent it to me, along with a signed accepted offer, to review and discuss. Prior to the Laundromat, Henry and I had reviewed two other businesses together that he passed on.
When I had reviewed what he had sent me, I gave him my insight into the coin laundry industry and pointed out things he should be concerned about. Read more
It is important to protect yourself from forfeiting your deposit when you sign a purchase contract. This would seem to be a very obvious statement. Except, what is not obvious is that so few people know how to do that. The result of inexperience is that too many people lose their purchase deposit. The deposit checks vary from $5,000 to $50,000 or even more. Read more
California Licensed Real Estate Broker #00529559
Certified Public Accountant (CPA) # 106752
Certified Fraud Examiner (CFE) #594927
Professional Certified Business Broker (CBB) designation
Business Buying Services
PO Box 2734, Seal Beach, CA 90740-2734
Phone: 805-428-2063
Fax: 562-446-0575
