Yesterday, I was reviewing a buyer’s signed purchase contract. He came to me after signing it, as his agent had said he should. His agent said he needed to hire someone to do the due diligence on the business. When I read the contract, I was shocked.
It turned out, in layman’s terms; the contract stated that the buyer was agreeing that:
- All paperwork had already seen
- What he has seen already was all that he was agreeing to be getting.
- The due diligence investigation time period had ended.
- Due diligence was approved because it was not disapproved, prior to signing this contract.
- Regardless, if he asked for more paperwork or not, if the buyer backed out he lost his deposit.
This was the most restrictive and dangerous contract I’ve seen in a long time. It makes any kind of real due diligence impossible, of course, since the buyer had already waived his rights to back out of the deal. The author of this contract was a dual agent.
Definition of a dual agent
Dual Agency in a real estate transaction means the listing broker represents both the seller and the buyer. A dual agent must not disclose confidential information to either party and must operate in a hands-off manner. A dual agent cannot get the highest price for the seller and the lowest price for the buyer — it is impossible. (Definition provided by about.com)
From what I’m seeing, dual agents are getting more aggressive these days in this market. This is especially true of putting clauses in the contracts that are getting increasingly seller-oriented and box the buyers into corners, more than I’ve seen before. The dual agent is not always providing the legally required dual agent notifications that are given to buyers.
As the business buyer, you’ve got the upper hand, so please act like it. Get your own agent, who is not also your seller’s agent, and get your full due diligence done before releasing your due diligence review rights. And for the sake of your own easy life later on, don’t sign what you haven’t thoroughly read.
Please, do yourself a favor and don’t sign any paperwork, for a business, without reviewing what you’re signing, and making sure that due diligence or getting your deposit back aren’t going to be impossible.
Call me if you have questions, I’m glad to consult.
Creative Commons Attribution: Permission is granted to repost this article in its entirety with credit to Business Buying Services and a clickable link back to this page.
Business Fraud
/in Articles, Profitability Analysis/by Willard MichlinAre your employees stealing from you? That is a form of business fraud.
If you own a business, of any size, did you ever consider that while you are working hard to make a living to support your family and staff, there are those that are also working very hard against your actions. Read more
Who Can You Trust to Loan Money To?
/in Articles, Business Buying, Business Due Diligence Horror Stories/by Willard MichlinTrue Story:
Glynn was a nice guy who was given $500,000 by his mother to buy a business, since his photography business went into the toilet. The money was burning a hole in Glynn’s pocket.
One evening Glynn met Joe at a local networking group. They started spending time together and became casual friends. Joe told Glynn he was an entrepreneur who owned different successful business in town. At least that is what he said.
One day, Joe told Glynn that he was opening a taco restaurant with two experienced restaurant partners. The business needed a taco machine with cost $10,000 and Joe was tight on cash. He asked Glynn to make a loan, secured by the taco machine. He would pay 10% interest-only payments for one year. Read more
Introduction to Due Diligence: How to Evaluate the True Worth of a Business: Due Diligence 101 or What You Don’t Know Can Kill You!
/in Business Audit Tips, Business Valuation TIps, Due Diligence/by Willard MichlinThis article is written as a general discussion on the subject of Due Diligence and how to evaluate a small business for purchase. It is for informational purposes and not intended to be a definitive guideline for your exact situation. You should consult the appropriate professionals with regards to your specific transaction or situation. Further, this article is in no way advocating, suggesting or implying that anyone engages in any type fraudulent activities whatsoever. These are simply things a buyer should be aware of when doing Due Diligence in buying a business. Read more
Get Rich While Going Green and Saving Your Dollars
/in Business Buying/by Willard MichlinGoing Green helps the earth and saves you money.
So how do we do that? This is a very interesting subject. The “Green Environmentalists” are designing and building new low energy use buildings. Because of the three year draught, they are also recycling water and reducing energy use.
Congress passed a law subsidizing solar generated electricity.
You can also buy electricity from independent utility companies who are selling electricity at a discount. Let us not forget solar water heaters.
Read more
Dual Agent or Get Your Own? A Changing, More Aggressive Business Buying Market…
/in Business Buying, Business Due Diligence Horror Stories, Due Diligence/by Willard MichlinYesterday, I was reviewing a buyer’s signed purchase contract. He came to me after signing it, as his agent had said he should. His agent said he needed to hire someone to do the due diligence on the business. When I read the contract, I was shocked.
It turned out, in layman’s terms; the contract stated that the buyer was agreeing that:
This was the most restrictive and dangerous contract I’ve seen in a long time. It makes any kind of real due diligence impossible, of course, since the buyer had already waived his rights to back out of the deal. The author of this contract was a dual agent.
Definition of a dual agent
Dual Agency in a real estate transaction means the listing broker represents both the seller and the buyer. A dual agent must not disclose confidential information to either party and must operate in a hands-off manner. A dual agent cannot get the highest price for the seller and the lowest price for the buyer — it is impossible. (Definition provided by about.com)
From what I’m seeing, dual agents are getting more aggressive these days in this market. This is especially true of putting clauses in the contracts that are getting increasingly seller-oriented and box the buyers into corners, more than I’ve seen before. The dual agent is not always providing the legally required dual agent notifications that are given to buyers.
As the business buyer, you’ve got the upper hand, so please act like it. Get your own agent, who is not also your seller’s agent, and get your full due diligence done before releasing your due diligence review rights. And for the sake of your own easy life later on, don’t sign what you haven’t thoroughly read.
Please, do yourself a favor and don’t sign any paperwork, for a business, without reviewing what you’re signing, and making sure that due diligence or getting your deposit back aren’t going to be impossible.
Call me if you have questions, I’m glad to consult.
Creative Commons Attribution: Permission is granted to repost this article in its entirety with credit to Business Buying Services and a clickable link back to this page.
Why Are You Doing Your Auto Body Shop Work for Nothing? A Battle Plan for Raising Your Rates
/in Articles, Specialties/by Willard MichlinIn my 15 years as a body shop broker, I have visited hundreds of body shops across the state. Almost 100% of the owners complain that, if they are being honest with me, they work too hard for too little money. They want to sell their body shop business to some other poor sucker who will run into the exact same problems.
Read more
Business Buying Horror Story: Floral Wholesale – The Seller Misrepresented Everything
/in Business Due Diligence Horror Stories/by Willard MichlinFlorist Business Due Diligence
Floral Wholesale – Riverside, California: Some months ago a San Diego Police Officer in the process of purchasing a business (for his wife) retained Due Diligence expert Willard Michlin of Southern, California to assist him in determining if the seller of Floral Wholesale was accurately representing the profitability of the business. The asking price for the business was $350,000. The Listing Agent and the Seller represented that the business was clearing a $130,000 profit.
Mr. Michlin, within three hours of visiting the business determined that the business was making no more than $15,000 per year and even that number was based on documents being incorrectly reported to taxing agencies. Read more
Avoiding Fraud When Buying a Franchise Business
/in Business Buying, Due Diligence, Profitability Analysis/by Willard MichlinDo You Think You Do Not Need Due Diligence When Buying a Franchise?
Opening up a new franchise location can cost upwards of $250,000. This is a lot of money for a business buyer to invest in a new unproven location.
New investigative reports are now stating that the selling of new franchise locations is where the real profit is earned by franchisors, rather then as previously believed on the 5% franchise fee paid from the sale of product. The franchise sales staff earn a large chunk of the $30,000 plus franchise fee charged. Plus the company makes a profit on the construction costs of the new store.
Many people have the idea that our government’s registration rules exist to protects the consumer from being cheated. In truth it has made the problem worse. Read more
What You Need to Know to Value an Auto Body Shop
/in Business Buying, Business Valuation TIps/by Willard MichlinWe have developed a comprehensive questionnaire in order to help you determine the value of an auto body shop before purchasing it.
Read more
Due Diligence Analysis: The Iron Works Story
/in Business Buying, Consultants, Due Diligence/by Willard MichlinHow much error can a buyer expect from a seller’s financial reports? A due diligence investigation will help you discover all you need to know.
Read more