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 that have developed a clever process of taking your business from you and leaving you not only with absolutely nothing, but totally destroying your business and leaving you in debt. 

Here's a basic breakdown of their process.

Their easiest target is to contact the owners of businesses for sale, usually via listings on the internet and identify themselves as acting for a private party or a small investment group.  They are looking for businesses generally that have at least a $1,000,000 selling price. 

If the business is being listed for sale by a business broker or intermediary, they will try to build a strong relationship with the seller.  If they feel the broker or intermediary is an impediment to what they are doing, they then try to get the broker or intermediary out of the way by saying direct to the seller that the broker or intermediary is a hurdle to closing a deal. 

Once they have a good relationship with the seller, they then make a strong offer with the condition they finance the deal over a short buy out period (say 6 to 10 months.)  The offer will include a small down payment, say 10% down AND as a stock sale (not an asset sale.)  Under this scenario, the seller holds all the stock of the corporation as collateral, and of course, the sale includes the cash, Accounts Receivable and other items per the Balance Sheet. 

Once they pay the seller the 10% deposit, they then require signature rights to the business bank accounts, credit cards and other assets while the seller "trains" them in the day to day operation of the business for the agreed two to four weeks training period. 

Once the training is complete, they then clean out the cash, run up the credit cards, factor the Accounts Receivable, 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 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.