If you are selling a business or plan to sell your business, be aware of the following scam.
The scammer contacts the owner of businesses for sale and identify themselves as acting as a Private Equity Group (PEG) or a small investment group looking to buy the business. The businesses generally have at least a $1,000,000 selling price. If the business is being listed for sale by a business broker, they try to get that party out of the way as soon as possible, especially if the business broker asks qualifying questions about “the buyer” and their suitability to buy the business. They get the business broker out of the way by telling the seller that the business broker is a hurdle to getting the deal done.
The final method varies with the scammer but basically here’s how it goes.
The scammer gets a basic amount of information to appear genuine and then make a full price offer to be paid over a short buy-out period (6 to 10 months), with maybe 10% down AND as a stock sale (not asset sale). The seller holds all the stock as collateral, and of course, the sale includes Accounts Receivable, Cash, Accounts Payable, etc (the entire balance sheet).
The scammer then gives the seller his initial down payment, take control of the company (while the seller is “training” them, and around most of the time), they factor the Account Receivables, clean out the cash, run the credit cards up to the max, may sell off some or get loans on the fixed assets (vehicles, etc.) and do not pay any payable/liabilities. They even sometimes fire employees, usually never paying any of the businesses (or employee’s) payroll taxes or other taxes.Then, they disappear in a month or so, having cleaned out the company by taking everything as cash.
Bottom line:These scams really do exist. It’s another reason to make sure your business broker is part of a State Association such as the California Association of Business Brokers or association such as the International Business Brokers Association. If you are planning to sell your business in Sacramento, please give me a call so I can help you. If you would are not in Sacramento and would like a referral to a business broker near your business, you are also welcome to give me a call.
There are different types of scams to get money from business owners that are planning on selling. If you’ve had an experience and would like to help other business owners by sharing your story, please add it to our comments below.
Be aware of scammers and the destruction they can bring when selling your business.