This article are provided for information purposes only, and are not intended as legal advice.


Buying a business which has been for sale for a long time

February 4th, 2010

You are looking to buy a business and you are aware that a particular business has been for sale for a very long time – 1 year and it is still for sale.  Is it worth looking at, is it over priced?  What questions come to your mind, probably that there is a problem with the business, with the price and possibly the owner?  Is it worth looking further to see if this is salvageable?  Remember, all business are for sale for the right price.  The question will be, is the right price a fair price that makes sense to you?

 

There can be many reasons why the owner has not sold.  Some entrepreneurs are not ready to sell.  They know that they need to due to health or age and can not longer keep up but they are still wrestling with the idea of what to do after retirement.  Many entrepreneurs have worked so hard all their life that they have no hobbies.  If they sell their business what will they do?  I saw one owner who listed his business for sale, had offers at close to his asking price but turned it down, he was not ready to sell it yet.  He wanted to take the money, buy a boat and sail the world.  The following year, he listed the company again, had an offer close to asking price, still turned it down, was not ready to sell, the next year, he listed it again, found an excuse.  On day the prospective purchaser, the broker and the owner went to lunch.  The investor did not want to drink and the owner found out that they had a drinking problem, were in AA but had not had a drink in 3 years.  The owner was probably an alcoholic himself but would not admit that.  He claimed that he did not like a person from AA to own his business so he turned down the offer which was very close to the asking price.  In the fourth year, he sold the business to a competitor for $75,000 less than his previous offers.  

 

Recently I heard of a real estate transaction where a house was listed for sale, within 3 days, they got an offer $100,000 over asking price. The owner turned down the offer because they thought that if they got offers so quickly, they could get a lot more for the house.  They were happy with the original listing price but they got greedy.  I heard of a similar case a few years ago, they turned down and offer, sold the house 6 months later for $400,000 less than their previous offer.  Greed works against many business and home owners.

 

If the business owner has not had an offer in months – will they be more willing to be reasonable?  If the business is deteriorating and a sinking ship, an investormay not want the business if it is beyond the point of no return.  If the owner is not ready to sell and you found out that he has turned down 3 previous offers, do you really want to proceed further knowing that you will have to invest time and money and it may not materialize in a purchase of the business because someone has listed the business for sale just to do some estate planning.  All they wanted to value the business for estate planning purposes instead of paying a chartered business valuator at a considerable cost to prepare a business valuation.  I even saw one case where the business was for sale, the investor needed to be an engineer with a specific type of backgroung to buy the business and that engineer needed $2 million. It took a year to find the needle in the haystack.  an offer was made, the owner of the business verbally agreed with the price, then the owner decided to sell the business for that price to an employee rather than the investor. 

 

Are all owners acting in good faith when they list a business for sale?  I leave you to make that decision to you.


Filed under: Buying a business — Gary Landa @ 10:32 am


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