Caveat Emptor – Let the seller beware!
If you own a business and receive an unsolicited offer to buy your business, please be careful. If your business is currently for sale, be even more cautious. There are con artists with a clever process of taking your business from you and leaving you not only with absolutely nothing, but also destroying your business and leaving you in debt.
Here’s a basic breakdown of their process.
Step One
Their easiest target is to contact the owners of businesses for sale, usually via listings on the internet. They identify themselves as acting on behalf of a private party or a small investment group, seeking businesses with a selling price of at least $ 1 million.
If a business broker or intermediary is selling the business, they will attempt to establish a strong relationship with the seller. If they feel that the broker or intermediary impedes their actions, they then attempt to remove the broker or intermediary from the process of handling the sale. They do this by informing the seller that the broker or intermediary is a hindrance to closing the deal.
Once they have a good relationship with the seller, they then make a firm offer. The offer is contingent on financing the deal over a short buyout period (typically 6 to 10 months). The offer will include a small down payment. For example, say 10% down, AND as a stock sale (not an asset sale). Under this scenario, the seller holds all the corporation’s stock as collateral. Of course, the sale includes the cash, Accounts Receivable, and other items on the Balance Sheet.
Step Two
Once they pay the seller the 10% deposit, they then require signature rights to the business bank accounts, credit cards, and other assets. At the same time, the seller “trains” them in the day-to-day operation of the business for the agreed two to four-week training period.
Once the training is complete, they then clean out the cash, run up the credit cards and factor the Accounts Receivable. They may even sell off some assets or obtain loans on fixed assets (such as vehicles), and settle any payable liabilities. They sometimes even fire employees. Firing the employees usually comes without paying any of the business’s (or employees’) 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 do exist. It’s another reason to ensure your business broker is part of a State Association. For example, I am a member of both the California Association of Business Brokers and the International Business Brokers Association, a national association.
Are you thinking about selling your business? Would you like to know the value of your business? For more information, please visit my website, Business Valuation.
For more immediate help, you are welcome to send an email to Andrew Rogerson or give me a call at (Toll-Free): (844) 414-9700
Further reading