Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

July 24, 2009

Warning! Business Sellers Are Liars

By Joseph Eneldas


“Business Seller Retiring – Priced to Move”

While searching for an existing small business to buy, the novice entrepreneur will come across a few deals that seem almost too good to be true. There are times when a family situation or a dodgy medical condition may require a quick sale at a below-market price, but these are exceptions that come along rather infrequently. Uncovering the truth as to why a person has decided to sell his or her business is the first step one should take in the due diligence process – an effort that should be extended to all aspects of the pending transaction. But it is only the first step, as there are other red flags to be considered as well. Here are a few avenues worth exploring:

Employee unrest – What is the relationship between management and its workers? One of the best ways to ensure a smooth transition from one ownership group to another involves retaining those who work there. If a labor conflict has caused this relationship to deteriorate, a new owner may be stepping into a bad situation.

Competition – How does the target business stack up against its competition? Make sure that you’re not at risk for being edged out of the market due to pricing considerations or more aggressive marketing tactics. Also, where are those competitors located? A seller may be bailing out because a similar business is opening up across the street or down the block. You don’t need that kind of additional pressure so soon after taking over the company.

Changes in clientele – Has the business experienced a change in the number or type of customers it attracts? Even if sales have remained constant, is the business keeping up with a changing market? If not, revenue could be in for a speedy decline.

Profit & loss – What are the net earnings of the company? Do they compare favorably to the profit margins enjoyed by other firms in the same industry? Some owners may radically cut costs a few months before putting the business up for sale, which can artificially inflate the net earnings figure. Make sure to examine profit-and-loss statements that go back several years or more. If the margins have changed drastically in recent months, no matter in which direction, that should be a cause for concern.

Questionable assets – Exactly what is being sold in addition to the business itself? When companies change hands, oftentimes this involves a sale of assets. This could include equipment, real estate, inventory, and furniture, but it could also involve such intangibles as the client base, intellectual property (patents or trademarks), and goodwill. The intelligent buyer will obtain an independent valuation of each asset, comparing it to the price tag assigned by the seller. In addition, it is wise to ensure that all assets are specifically named on the bill of sale, so that there is no question as to what is included.

To be clear,
one should not enter into the purchase of an existing small business with the expectation that the seller intends to cheat, steal, or lie. The vast majority of business owners are honorable, although they may be tempted to color any situation so that it comes out in their favor. Nonetheless, a skeptical buyer is a smart buyer. Never take anything at face value, and investigate every claim for yourself.

This is the time a professional, well experienced broker can help in providing the desired information to a buyer. In all likelihood, not only has the broker previously helped the seller preparing the business for sale, but a reputable broker also wants to continue working with a buyer and seller (either in form of more acquisitions or later on the sell side) and thus, has a vested interest that both sides are satisfied long after the transfer was executed.

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or

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“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

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Srini Mudambi

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Colby Harris, Co-Owner, Del Mar Designs

“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

Ron Harris, Co-Owner and Vice President, Del Mar Designs

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James Belanger, Business Owner

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Andrew G., Investor

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