The $540,000 Seller Blunder! Your Broker is Your Partner!
Providing material information regarding your personal and business situation early during the listing process can make or break a deal. It isn't the time to be proud or withhold critical information; rather your broker is your partner in the transaction (after all he's taking a percentage of your equity) so treat him or her as a wise business advisor.
In the past six months, I've had two business owners withhold critical information from me that has cost them a combined $540,000 of lost cash! Yes, I had buyers offering $550,000 CASH for these businesses.
On one deal in Pasadena California, the owner failed to completely disclose a pending law suit he was involved in with a former member of the LLC that owned the business. In a nutshell, there originally were 3 partners who started the pizza business. The operating partner sold his membership interest to a third party for $60,000. The other two partners decided not to recognize the sale. New partner sued.
I received an offer of $240,000 primarily for its location. Buyer backed out of deal due to that lawsuit. Had the seller been smart he would have clearly disclosed the details of this lawsuit to me. Had he, I would have strongly suggested negotiating a settlement with the plaintiff. In the end the owner got greedy and he lost it all. He closed the business.
In another example, a yogurt shop owner called me and needed a fast sale of their two shops claiming they're on the verge of bankruptcy due to a law suit they were in with a franchisor. They provided proof the businesses were profitable, but the lawsuit drained them of $500,000 over three years.
In one week I produce an offer of $300,000 cash for the two shops. Then the owner proceeds to tell me they owe one landlord $120,000 in back rent and they think it is a good idea to negotiate the back rent down to $80,000. I strongly urged them not to do that because the landlord is a HUGE public company and they have the resources to go after them personally and as a massive corporate landlord, they have no reason or logic. I hate being right! The landlord locked them out! They lost the sale and $300,000.
These two business owners lost a total of $540,000. That's $540,000 less debt. That's two closed businesses. That's 20+ employees lives that were hurt. And all because of bad decision making on the part of business owner's who made bad decisions. Sad situations, bad decisions!
Don't let yourself fall into that trap. Consult with your broker. Get his or her business advise.
Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry. Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer. Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world. There he participated in more than $11.5 billion of merger and acquisition transactions. He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University. Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions.