Owner, who is selling business messaged, “Well it looks like we celebrated way too soon. We found out that the buyer backed out of the deal saying that if we didn’t sell at the price we were asking, he’d like to give us a lower offer.”
Oops. Sorry. But it proves once again that “It’s not over until it’s over” in selling business. Too many times I heard of owners who have secured a “deal” without the proper process.
What is it? Usually a Letter of Intent is issued by the buyer saying that they will purchase for a set price under a set schedule of payments (so much down, so much financed or all cash) subject to “due diligence” or their checking out the facts as you have defined them.
Under that type of agreement, the buyer can’t just “back out” at the last minute without at least paying a penalty to the seller unless the seller has misrepresented something. And since the buyer did back out at the last minute here without explanation, I assume a real agreement was not secured.
Usually this happens when a seller is not working through a business broker or at least has an attorney draw up the proper “letter of intent” and subsequent paperwork.
As for the buyer’s statement that if you didn’t sell at the asking price, he’d like to give us a lower offer; well it comes to my mind what would make one think that he would honor any offer?
Anyway, hope you got some earnest money. If you didn’t, then please be sure to next time. Make sure the buyer has some skin in the game and the paperwork is done so he can’t just back out….
FOR THOSE WHO ARE CLOSING THE DEAL: SELLING BUSINESS CHECKLIST
Here are three links to pretty good lists of things that need to be done at closing that might be of help to you.
http://checklist.com/closing-a-business-checklist/
http://www.inc.com/mike-handelsman/selling-your-business-checklist-for-a-smooth-closing.html
http://www.nolo.com/legal-encyclopedia/checklist-closing-business-20-things-29027.html
ANOTHER SELLING BUSINESS QUAGMIRE
A seller received this response from a buyer:
“I spoke with the loan officer at X Bank, my advisor and a business consultant. They all agreed with my assessment that the discretionary income of $50,000 you project (which would normally be used to finance the purchase), would be used up to pay someone to do your job. Therefore, with basically no discretionary cash your valuation was viewed as quite optimistic. While my banker thought that my business property, which has no mortgage, would be enough to back a loan, he didn’t anticipate enough cash flow to support or approve any type of loan.”
“I would like to pursue this further, but only if an independent evaluation of the business can be done. I am willing to pay half of the fee that the business consultant charges to provide an evaluation, which he said would take approximately two weeks.”
What could be wrong with this?
An independent valuation would be one way to proceed but to proceed with a valuation from the business consultant who agreed with him that your price is too high isn’t the way. And that’s especially true as he is asking you to pay half the consultant’s fees.
So, no, I wouldn’t recommend that.
Here’s something you may wish to go back to the buyer with ….immediately reject the offer and then indicate something like:
“I will give you my books and whatever information you wish in exchange for a non-disclosure, non-compete agreement. Then you determine what you think it is worth and make me an offer. You may certainly employ any advisors you wish to determine the value but they are yours to pay.”
Now, since your initial valuation is disputed and IF you proceed with an independent valuation, it should be from someone like the following:
+ CPA designated as Accredited in Business Valuation (ABV) Overview of the ABV Credential
+ Certified Valuation Analyst (CVA) by the National Association of Certified Valuators and Analysts http://www.nacva.com/
+ Accredited Member (AM) or Accredited Senior Appraiser (ASA) of the American Society of Appraisers http://www.appraisers.org/Accreditation
Otherwise, the buyer should make an offer based on whatever they wish and you may then consider it.
Now, what if he walks away?
You haven’t lost anything for he is already saying the business is worth nothing. But, no, this is a guy trying to beat you down in price and wanting you to pay for half of a valuation that he would use to do so. I wouldn’t go for it.
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At CPrint, we assist owners with internal transitions as well as help get the business ready for sale through improving performance. Should you wish to have a no cost or obligation transition conference with me about your situation, email me at tom@cprint.com. I’ll be glad to chat.
Tom
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