I recently read an article regarding a business owner misrepresenting the facts when selling their business. It was regarding a dental practice that had fraudulently claimed their £400,000 turnover was derived entirely from private patients when in fact only just over half was private, the balance being NHS patients.
The sellers lost their case in the courts and were ordered to not only pay damages representing the difference between the price paid and the true value, but additionally, they had to pay compensation for consequential loss caused by the misrepresentation.
https://www.markellaw.co.uk/fraudulent-misrepresentation-before-a-business-sale/
http://www.bailii.org/ew/cases/EWHC/Ch/2017/2655.html
Although this was a deliberate attempt to defraud, it reinforces the Business Brokers mantra of “We do not like surprises”, because, no matter how, why or when, if something is not revealed or changes during the sale process it could derail the deal. Or in the example above, end up costing you a lot of money!
There are many examples where a broker has contacted their client for some reason, only to be surprised by something the client casually mentions. A recent example was where a client had employed a new member of staff to do a specific role in the business. In the normal day-to-day operation of the business this would not have been an issue and a perfectly reasonable thing to do. You have a vacancy, so fill it! However, the vacant role was one a prospective buyer was using to try and reduce the value, and hence the purchase price, of the Clients business. Had it been known that the Client had successfully filled the role the prospective buyer could have been informed and the issue taken out of negotiations.
An owner who is going through the process of selling their business should not take their foot off the accelerator and apply the brake even when an offer is received. For a start, the deal could fall through and the business could be back on the open market. The owner would then need to ramp back up to attract further prospective buyers, but also a buyer would expect the business to be maintained through the sale process so when they take over it really is “business as usual”.
Similarly, a business owner would not be expected to further develop the business during a sale, especially where the area of development is one that has been presented as a development opportunity for the new owner. The current owner may only receive a short-term gain, whereas the new owner will reap the benefits into the future, if that is the direction they choose for the business. There is a risk that the effort the current owner puts in is in vain as the new owner may choose a different path anyway.
The advice for an owner in the process of selling their business utilising the services of a business broker, is to be as open and honest as possible. The broker can then consider all the information when handling the sale. Something that seems insignificant to you may be just that, but better to consider it early rather than it come out at the eleventh hour and scupper the deal!