The price you may pay for blind trust.
The owner of a 20-year old, well-established business in the specialty retail space wanted to sell. And he figured it shouldn’t be too difficult – they had a solid repeat-customer base, loyal employees, and a great sales history and projected future.
They also had a distinct advantage in the space with exclusive arrangements with a number of high-end lines that their competitors couldn’t touch.
The owner engaged an intermediary since they were getting numerous calls and offers from buyers.
It seemed like a win-win when one of their trusted, long-time suppliers expressed interest in buying the business. He was the perfect buyer – he knew the industry, he knew the business.
Without consulting the advisor, in an act of good faith, the owner provided the potential buyer with access to tax returns and company records in order to speed up the process.
As soon as the advisor heard about what was going on, she contacted the potential buyer to sign the proper confidentiality agreements and conduct basic due diligence – including determining his intentions and whether he had the financial resources to acquire the business.
By now, you may have figured out this is not going to have a happy ending.
This “perfect buyer” had no intention of signing a confidentiality agreement and he didn’t have the financial resources or any genuine interest in acquiring the seller’s company at all.
Instead, he stole their customer lists; told their customers, employees, and suppliers that they were selling their company; and managed to maneuver the exclusive, lucrative product lines away.
In essence, he stole the company right out from under the owner, and he willingly handed him everything he needed to do it.
With the right planning and homework, this owner could have sold the business to a real buyer and enjoyed his retirement as envisioned.
While “I want to buy your business” is music to any business owner’s ears, you need to make sure that you conduct the proper due diligence on a potential buyer before any private or financial information is exchanged – or you’re putting your business and yourself at risk.
Make sure you understand how the deal process works and where the mines are buried so you don’t take any missteps.
Register for our next workshop Rebuild Your Business with Your Exit in Mind.