Selling a Business during the COVID Crisis: An Update

A Business Broker representing the Seller is legally bound to represent the interests of that Seller, even if it is not always in the Broker’s own best interests to say or do some of the things the Broker is called upon to do. Frequently, changes in the market or even changes in the Seller’s own business can demand that we disclose information to our Client that any Seller may not want to hear.

Whether the Seller decides to act on the information that the Broker discloses, is up to that particular Seller. The Seller – the Client – always has the final say in whatever decision is ultimately made. The Broker brings his/her knowledge, experience and personal business contacts to the transaction, in many cases for the principal purpose of allowing the Seller to make those intelligent decisions for him or herself.

Changes in the market can occur during varying cycles in the economy, and they can also occur even seasonally. But there has been no change in the market that has ever occurred in the United States, that is in any way similar to what is going on now with the COVID crisis. Some people have likened this to World War II; however, even during World War II, people were allowed to get together in close proximity to each other. So, even though businesses may have slowed in many areas, only in rare instances where they ever shut down completely, or forced to close their own doors because of a complete prohibition of travel or the ability to assemble together in groups.

This crisis has obviously created a mammoth change and personal behavior, which has trickled down to every nook and cranny of our culture. Banking, as we discussed in the last post (https://wordpress.com/post/comBroker2.wordpress.com/82), has suffered along with the rest of us. But there have been certain updates since that last post, and that is the reason for this update.

We have continued to speak to any number of Banks, particularly those that cater to SBA lending opportunities, because that is where a number of our own Clientele sees the greatest success from purchases of their businesses. As we discussed in that last post, the majority of Banks are not extending any new loans – SBA or otherwise – because they are reserving the Bank Capital for refinancing or working out loans they currently have on their books. They are attempting at all costs to avoid foreclosures with those current loans, and attempting to find ways to work around what they hope will be a short-term crisis.

Many are still taking applications for business loans, but have no real intention of acting on those loans, at least at present. They are using those applications to formulate a waiting list of applicants, for future use. This is by no means an incorrect or unethical practice, unless they are giving the applicant the impression that the Bank is immediately, actively and aggressively working toward fulfilling that loan. And almost none of them are in a position to fund such new loan opportunities.

Banking itself is in a bit of chaos, not of their own doing, but because of what the COVID crisis is doing to the economy. To a very large degree, Banks’ lending practices and the interest rates associated with those loans are predicated on what is going on in the industry represented by each transaction in question. For example, in the 1980s, Gas Stations were suddenly required by the Federal Government to replace their underground gasoline storage tanks from the older, bare steel tanks, to the newer, more long-lasting tanks made of composite materials. Though in the latter 1980s when the economy was extremely upbeat, it became incredibly difficult to get financing for those Gas Stations to be sold, until the tanks were replaced and great care had been taken to ensure there was no pollution at the site, either as a result of the leaking previous tanks or during the replacement process itself. Banks are exceedingly risk adverse, and many Banks did not want to fund Gas Station transactions at all.

In the current situation, like the example of the Gas Stations, we can point to a specific onset of when the economic downturn occurred and the reason for such a decline. But unlike the Gas Station scenario, the COVID predicament represents an enormous financial collapse across many businesses in many industries. Moreover, the current situation makes it virtually impossible to project when and how much of an economic revival we can anticipate, over what period of time.

The Federal Government Stimulus is an extraordinarily positive and aggressive economic strategic move. Will it be enough? No one really knows. And importantly from a very short-term perspective, it is currently in bedlam. We spoke to one prominent Banker this morning about the stimulus in general, and the comment was that now, with only about a week of experience, the entire terms of the stimulus from a regulatory Banking perspective had changed three times. The first change came only an hour after Banks had received their initial set of governmental guidelines.

The net result is that the Banks are a bit frozen in indecision, not knowing whether the guidelines and regs that have most recently been distributed are in fact, the final say. The net result is that the Banks have this far done nothing. As far as can be told, with every Bank we have to date discussed this issue, not one dollar from the stimulus program has been granted or distributed.

This is not to lay blame on either the Federal Government or the Banks. It is a lousy, lousy situation, particularly for small business people that are desperately in need of such assistance. But the fact is that neither the Banks nor the Feds could ever conceive of a collapse this deep, with the stimulus this aggressive, and all the terms and controls that would be required to implement this kind of a strategic plan. That is to say, they are making it all up as they go along.

What this means to the Business Owner looking to sell at this point is that, depending upon the size of the sale and the demand for that kind of business model, the Business Owner may, and probably will need to act as “the Bank”, in funding the sale. Unless the business is small enough, and the Buyer is wealthy enough to be able to pay cash, there simply are very, very few alternatives.

No Business Owner wants to take a note! And frankly, we agree 100% with that philosophy. Our belief is that the current Business Owner took a risk when he/she bought or started that business from scratch; he/she should really not have to take a risk in selling it.

But the alternatives are not pretty, and none are to the Seller’s advantage. The first alternative is to simply refuse to sell at this point in time, and wait until the economy improves. The negative is that of course, as was stated above, we have absolutely no idea how long that could take. Moreover, no Bank will make a loan for any business that has Revenue and Profit that demonstrates a recent history of decline. The Bank would certainly understand that the decline was caused by the COVID crisis; but what they cannot forecast is how fast and to what degree the business will experience a resurgence. Or will there ever be a recovery? That uncertainty, that risk is something with which no Bank will deal. The Business Owner is then faced with the prospect of having to rebuild the business and proving, through Tax Return documentation that the business recovery has in fact taken place. So, if the COVID crisis ends at some point in 2020, the Business Owner is going to have to wait until he/she files Tax Returns at the end of 2021, in order to minimally demonstrate the value and perceived stability of that business.

The second alternative is really a function of the first, in that if the Business Owner decides to wait until the end of 2021 two list and potentially sell the business, one can only assume that many, many others will do the same. If a large number of businesses are placed for sale, all let’s say on or about March 1, 2021 after filing their taxes, there will be a potential glut in the market of businesses for sale. If the business in question is very unique, this may not be as much of an issue. But if the business is more of a generalized type of enterprise, the laws of supply and demand would suggest that a market glut of this type would radically reduce the value and resulting price of any business.

 

The third alternative is for the Buyer to potentially avoid Banks altogether, and seek Angel Investors or other types of private funding in order to make an acquisition. This kind of funding strategy is frankly not necessarily in the best interests of either Buyer or Seller, in most cases. The biggest, singular reason is that private investors would normally charge far more than what would be the rates demanded by the Banks. Any specific small business has an average historical Cash Flow on which prices are estimated. In this case, Cash Flow means the amount of money remaining after all Business Expenses have been made; this, then is the money with which loan payments (Debt Service) must be made and for which the New Owner can pay him/herself.

The Cash Flow is perceived as being very narrowly defined and very finite, in terms of dollars and cents. Therefore, if the Buyer is forced to go to a private lender, and that private lender charges a much higher rate than what might have been charged by a Bank, the rate of interest appreciably increases the Debt Service that must be paid by the Buyer on a monthly basis. And since that Cash Flow is defined in very finite terms, and since most Buyers see the income they require as being equally well defined, because they have their own home mortgages, utilities, car payments and credit cards that must be paid on a monthly basis as well, the only real variable is what they would be willing to pay for the purchase of the business itself. If Debt Service payments go up, their only recourse is to offer a lower price, so that the Cash Flow available to them remains at an adequate level.

Any price can be set by any Seller and his/her Broker. But the final sale will be dictated by whatever a ready and able Buyer is willing to pay. Having been in this business now for more than 20 years, it is still surprising how “the market” of Buyers normally arrives at about the same level of pricing.

There are ways to maximize a price through Seller financing. And there are any number of ways of protecting the Seller during this kind of financing process, if this is a route the Seller chooses to take.

Selling a business is always all about judging and acting on alternatives. Unfortunately, the COVID era has narrowed some of those choices. The wise Seller understands this well in advance, because no one likes these kinds of surprises!

 

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com.  Thank you for your interest.)

COVID 19 (Corona Virus) is Here: Is Now the time to sell my business?

Any crisis creates opportunity. In many circumstances, it depends upon your type of business that suggests whether opportunity has arisen, whether your Company or service can adapt to meet a potential opportunity, or whether the time is just generally lousy for you.  On March 30, 2020, now is the time to review this issue.

For Johnson & Johnson, sales of Tylenol have gone through the roof and it presents an incredible opportunity for that particular Company, among other, similar health-oriented manufacturers. On the other hand, healthcare companies in general are not necessarily doing exceedingly well. We are dealing on a superficial basis with the Company that produces and distributes equipment that is needed by patients with broken bones in their legs and feet. This Company is doing “okay”, but not swimming in profits at this point. The reason is simple: people are not participating in sports, running around outside as much as possible, or generally getting out and about beyond the house. Therefore, they have less opportunity to break those bones. The “market” for a lot of orthopedic products and services are therefore diminished at this point time.

Whether your Company is facing or enjoying increased profitability as a function of the virus and all its various impact points, really needs to be studied in detail. There is no question but that a large number of small businesses will fail as a result of the COVID 19 crisis soon, as a direct result of orders from various levels of government to remain ensconced in home. But there are probably also lengthier issues that might negatively affect a given business, such that more businesses will fail down the road. This latter series of failings may be due not to the direct actions by various elements of government, but by a complete change in business and consumer cultures.

An example of that may be the entire Movie Theater industry. With the growing popularity of services like Netflix and computer streaming of movies and other computer related entertainment, Movie Theaters were under siege and fighting to remain relevant. They were gradually adapting, changing their theater configurations, bringing in opera, ballet and other upscale events, adding alcohol bars and presenting Company-sponsored seminars and even live meetings in daylight hours, during the week. This gradual change has now been radically and immediately altered. Because of the abrupt nature of how people are now forced to alter their entertainment and local travel choices, no gradual change over can be performed. A “do or die” strategy is something that needs to be employed, and not only with Movie Theaters, but with countless other types of businesses.

So, a major question is, how do you make your particular business more relevant? If you are a restaurant, you obviously cannot put fannies in the seats, but you can do delivery. Or allow customers to place their orders by phone or computer, and pick up their orders. And if you do not have a liquor license with your restaurant, perhaps you can cooperate on orders with the local liquor store.

We dealt with a necktie manufacturing Company, at one point. Neckties certainly are not now being sold in any great quantity. But what about surgical masks and hospital gowns? What else could that manufacturer do that might keep them operational, and even potentially increase their Revenue and Profits? It in so doing, promotional opportunities become rampant!

Computer companies could have a heyday with this, because the move to teleworking in people’s homes has created a tremendous demand for video teleconferencing, or teleconferencing at any level. Hardware purchases could be on the upswing as well, as a direct result.

What is your business niche? How is the business culture changing? How can you alter your operational product or services to meet those needs, not only now, but for the foreseeable future?

If you are looking to sell your business, one of the most basic needs you have is to maintain current Revenue and Profits. A temporary dip can be explained, and we did this after 9/11, and more importantly and with greater difficulty, after the 2008 recession. But without some semblance of tangible recovery after the crisis has ended, no Buyer will want to purchase your Company until it has proven its recovery. Moreover, until that recovery has taken place and has stabilized, no bank (with or without SBA support,) will fund any Buyer’s acquisition of such a Company. Both Buyer and bank need to know that the Company is healthy, and that the losses that might have been experienced during the crisis, are over and were solely due to the COVID crisis.

This could mean that a Company that is unable to recover and stabilize would need 18 months to two years of return to prosperity, in order to demonstrate to the bank that it is worthy of loan consideration. Prior to that time, a Company could well be sold, but at an extraordinarily deep discount.

If your Company is presently still demonstrating some semblance of stability, despite this initial phase of the COVID virus crisis, the time to sell it would be now! A large number of businesses will be forced to wait until they return to some sort of economic recovery and normalcy, compared to the market at large. But that could potentially mean that in 18 to 24 months, a mammoth number of business could end up for sale at the same time. The sheer volume of that many being placed on the open market simultaneously, could well reduce the value by providing a glut of such opportunities in the market.

There is also every expectation – as it already has begun to do for Commercial Real Estate and Business sales – that interest rates will rise. Commercial Real Estate and Businesses are enjoying all time high pricing when sold now, because interest rates are low. But rising interest rates will depress the prices that can be demanded by Sellers.

This is an extraordinarily difficult concept to master, because again it must be done on a Company by Company basis. We are happy to have discussions about such circumstances with you, if you feel that to be appropriate.

 

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

Selling Your Business?

A recent (August 2016) survey performed by Pepperdine Graziadio School of Business and the International Business Brokers Association suggests that manufacturing businesses are suddenly, very much in demand. Manufacturers with Revenues of between $1 million and $50 million per year are selling quickly and at higher relative prices than at any time in recent history. The successful sale of companies of this kind appears to be far faster and with better pricing than service operations and distributorships, which have historically outpaced manufacturing by a substantial margin. Restaurants and service businesses still have the lead for sales under $1 million in annual Revenue, perhaps simply because they are more affordable for the small business person.

 

Normally, in an election year, Buyers would appear to be hesitant, and our business brokerage activity slows dramatically, particularly during the six months leading up to electionday. But for whatever reason, this year we have found an extremely active Buyer market. Certainly, one of the big reasons is the low interest rates that are available.

 

We also represent two (2) small manufacturing-oriented operations for sale, and the demand for these has increased dramatically, compared to activity we have seen from our other listings. Liquor Stores are a particular favorite in the retail market, but these have been difficult to sell over the past two years, because of premium pricing demanded by the Sellers. Demand for other Retail-oriented stores has been somewhat lower this year, for a variety of reasons. Restaurant sales have – as always – been fairly brisk.

 

If you or anyone you know has a business of their own and are thinking about retiring, now could be an ideal time, before the market changes and interest rates begin to rise.

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)

Thinking of Selling Your Business?

For some, we have been writing a blog about BUYING businesses.  It has been fairly well received, and the proof of that is:  (A) We have not been thrown off of the Web Site – yet…  And (B), we have received a number of very positive comments from around the USA and even the World, both on the Blog site itself, and even more, privately.

So, now we turn to business Owners, or potential Sellers.  Yes, we are Business Brokers.  No, this is not a shameless attempt to get you to list with us.  (If you wish to do so, GREAT!)  This has more to do with the state of the marketplace, whether it is time to sell, how to get ready and so forth.  Some will deal with Brokers – but in a generic sense.  Other posts with have absolutely nothing to do with Business Brokers, we promise!!!

And the first issue is:  Do you need a Business Broker, in order to sell your business?

As self-serving Brokers, obviously our answer would be an unqualified, YES!  But that is not always true…

There was one business in particular where we sold the man a small Retail business, and in two (2) years, he grew it by an enormous amount.  The local residents noted the improvements and one day, one of them walked up to the Owner and offered to buy it for cash, right then and there!  The Owner was tired of the business and accepted on the spot.  Then called us and asked for us to find him another business.

He avoided the Broker Commissions and made a handsome profit.  But in retrospect, after we looked at his books, we noted that he probably sold at about a 25% discount, below what he could have commanded in the open, competitive market – far more than the commission we would have charged him.

And that is part of the key.  One of the things we, as Brokers attempt to do is to ideally provide for a maximum pricing presentation, and promote it in a competitive arena.  Competition can only exist if there are two or more parties in the mix.  Someone that walks up to you and simply offers money is frequently – not always, but frequently a “bottom feeder”, who is looking to sneak in and buy at a discount, without anyone like a Broker to push the pricing envelope.

Some Brokers are better than others, at this.  NO QUESTION!  There are some really bad Brokers out there, who would sell their souls for fifty cents; and they would push you to take the fastest deal, no matter how bad it might be for you, in order for them to get their commissions quickly.

But there are good and bad Doctors.  Good and bad Attorneys.  (In all of our transactions, we have only had two Buyers lose their deposits, and in BOTH circumstances, it was their Attorneys that were the cause of the losses!)  In your businesses, it is certain that there are good operators, and bad operators, among your competition. Certainly, all Brokers are not created equally, either.

The key for you is to take a critical look at the Brokers you are considering.  And one way of doing that is to ask them for references.  Another is to ask them for their ideas on pricing.  Many unprincipled Brokers will do one of two things, to get you to sign with them.  The first is, “I have a Buyer for your Business!”  The connotation is that they have a SPECIFIC Buyer for your SPECIFIC business.  A more truthful statement might be: “We have a couple of Buyers looking for your KIND of business.”  That is a statement that does not guarantee you anything, (which is why they do not say it that way,) but it is a far more honest statement, and probably far, far closer to the truth.

We know of one Broker in Maryland who told a business Owner that he had A BUYER for her business, and she offered him a commission agreement for that one Buyer.  But the Broker never put the name of that specific Buyer in the agreement, tying her up for months until she extricated herself from the threat of owing this Broker a commission, for every Buyer that came through other sources.  She was terrified that if she took any other Buyer’s offer, from any other source, this first Broker would suddenly show up and say, “I brought that Buyer to you, first; he was my original Buyer.  You owe me a commission!”  When she finally contacted us, we put her in contact with an Attorney, who sent a brief note to the original Broker, severing his agreement.  That agreement was a voidable one, and it put her in a safer position.

The second way that unscrupulous Brokers try to generate listings, is to promise you huge amounts for your business, that are way out of line from reality.  One Owner called us and said he had something like a $1 million business he wanted to sell.  When we reviewed his books, it was obvious that his business was properly priced at closer to $350,000!  We asked where he got the idea it was worth more, and he said it was from another Broker.  When we asked why he did not list with the other Broker, he responded that the other Broker wanted $5,000 for the final report and an up-front listing fee.

Obviously, that other Broker was not really selling businesses; he was selling pricing reports.

The difference from the service we provide and the example of the Seller we cited above is that our Broker Price Estimates show how the suggested Price is a rational one: It shows the Seller a Cash Flow Analysis, demonstrating how a lender could accept such a price.  With the previous example, when we performed our own Cash Analysis and Broker Price Estimate, the $1 million price would suggest the Buyer would lose a substantial amount of money every month, before he/she ever took a dollar out, for him/herself!

This is the kind of analysis you, as a prospective Seller, have to keep in mind when pricing your business, whether you work with a Broker or not.  If the business cannot carry the note payments, if there is an insufficient Return On Investment, the price is generally speaking, too high!!!

So, do you need a Broker?  Not necessarily, but you better know what you are doing.  Do you do your own colonoscopy?  Would you represent yourself in court, if you were accused of murder?  Ideally, in any technically-oriented scenario, you put the issue in the hands of the expert.

The question becomes, is the Broker you are looking to list with:

• Experienced?
• Well regarded in the community and referenced?
• Does he/she understand business?  (Someone that has never run his/her own business may not be your best bet; do they really understand business ownership/management, and can they effectively communicate with you and the Buyer about those issues?)
• Does he/she even understand how to read (and therefore explain) a P&L?  You would be surprised at how many do not!
• Is his/her judgment sound, such as in the area of pricing?
• Does he/she understand what to say and, sometimes more importantly, NOT to say in a negotiation?  (This is where most Business Owners, themselves fail.)
• Does he/she understand the variety of advertising and promotion instruments that might be best for your business?
• Does he/she cooperate with other Business Brokers?  (Not many do, in most areas of the Country, unfortunately.  This is to your disadvantage!)
• Does he/she understand financing?  It does you little good to get a great offer, and the Buyer has no way to finance the deal.

Not all Brokers are created equal.  But a good Broker will generate more in Price, than what you pay him/her in commission.

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)

Selling Your Business: Vital Factors in Pricing

Once again, we have received an email from a Business Owner telling us how much Revenue he is earning per year and how much he pockets, then asking us how much his business is worth. Friends, it just ain’t that simple! There are a lot of issues that go into the Buyer’s psychology in buying a business, and a major portion of it is Profitability. But there are a tremendous number of other considerations, as well.

But staying with Profitability for just a moment, the Profit that the Seller says he/she is reporting on his/her tax forms are unquestionably not the entire picture. There are any number of adjustments that can and should legitimately be made in most businesses, that add to the bottom line from the Buyer’s perspective. These are things that we need to examine, prior to rendering any kind of a decision on estimating the Price. It does not take weeks or months to make such a pricing estimation, but it is also not something that can be responsibly done on the basis of a three line email.

Every Seller seems to want a “quick and dirty” pricing estimate. Frequently, even some of the more amateurish Brokers will lean on multiples of Profit or Cash Flow. This might be fine for casual discussion, but it is an approach that quickly and frequently breaks down, providing misleading results for many, many businesses. One of the big problems is that the multiples change from industry to industry. Another is the nature of the relationship that the business has with its clientele, which can increase or decrease the multiples utilized, even within a given industry.

Moreover, even if one insists on solely utilizing some sort of multiple, there are a huge number of additional, less tangible factors that come into play. The following is a list of only some, emphasize S-O-M-E of these intangibles:

• The number of years that the business has been open is a mammoth consideration. The SBA will frequently not even entertain thoughts of financing an acquisition unless there are three (3) years of tax returns filed on behalf of the business. The reason for this is that many businesses go through a “honeymoon” phase, where the operation can be doing extremely well for the first 18 months, and then sales fall appreciably, thereafter. Below three years of experience, the Price can frequently compared to other businesses of similar size, but with greater maturity. And in some industries, the longer the business has been operational and Profitable, the higher the Price expectation may be, even past the three-year threshold. E-commerce is an example of one such type of business.
• Consistent performance and growth is a huge factor. When a business goes down even marginally, we will often hear the Sellers say that it was a “blip”, or temporary decline that will be quickly overcome. Frankly, the Buyer and the bank do not want to hear that. They want to see proof. That “blip” may be just what the Seller says it is. But the Buyer and bank take the perspective that for all they know, that “blip” may be just the start of a long-term erosion in Revenue and Profit, which could well bury the business. Some Sellers tell us they do not want to sell because their businesses are doing too well. Our response to that is that this is exactly when you want to sell! This is the point at which you can get your highest Price. Buyers want to buy a consistent, if not growing business entity. They certainly do not want to buy a company that is in its death throes, or at least struggling. And if they do, they are absolutely not paying top dollar for such an acquisition. More typically, Buyers will want to know that they are purchasing a company that is not only growing by itself, but is part of an overall industry that is expanding and growing.
• Customer loyalty is something that Buyers could or should be looking for. This is often evidenced by repeat purchases or customer referrals. Keeping a tracking mechanism of some sort is usually worthwhile.
• There is no such thing as a “recession proof” business. But Buyers will want to see proof that the business has few, negative influences caused by outside factors. As an example, an e-commerce business needs to demonstrate that it did not suffer broadly if and when Google updates occurred.
• One of the most critical issues to any Buyer or lender is the involvement of the current Owner, and the confidence that the business can continue to operate once that Owner has departed. Businesses where the Owner makes all the decisions and is “the face of the business”, carry a tremendous amount of liability with them, and their pricing suffers as a result.
• The Seller should be able to demonstrate what, if any growth opportunities lie ahead and briefly, how they might be captured. Frequently, the intelligent Buyer wants to make sure that he/she is buying a long-term investment, rather than just a job.
• Excellent relationships with suppliers can be important. Written contracts with such suppliers are also preferred.
• Depending upon the business, written contracts with Buyers, maintenance agreements and similar instruments that can work toward guaranteeing a certain amount of income will absolutely enhance the Price.
• Profit margins, compared to the industry standard or other competitors can and should be examined. We are dealing with one business right now that, for the purpose of generating market share, has a 20% lower Profit margin than the industry, as a whole. Anyone that is studying the business sector as part of the due diligence process understands this, and has consistently stayed away from making offers at the level the Owner has arbitrarily set as a threshold.

As a Seller, these of some of the things to which you need to be extremely sensitive. These are the kinds of things that will add to or detract from the kind of pricing that you can anticipate. But they also impact the speed with which the business can be sold and whether you will ultimately receive terms that are to your benefit, in order to receive the maximum in return on your own investment.

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)

Business Sellers that Self-Destruct

During the process of brokering a business, we note several “bookmarks”that occurred during the process. The first is certainly when the seller engages a Broker.Another is when an acceptable Letter of Intent is signed by the Seller. A third occurs when a Contract is signed by both parties, with a fourth following the Buyer receiving funding. The final bookmark is the closing or settlement, were money and keys are actually exchanged.

These bookmarks are not individually, monumental events, except for the closing. However, during the selling process a certain psychology can creep into the Seller’s thinking that can be monumentally devastating.

The decision to sell one’s business can be depressing, it can be thrilling for the Seller, or it can be simply like turning a page in a book, where the Seller simply moves from one activity to another. But there is no question that in many cases, when he or she makes a decision to sell, that the Seller is mentally gone, well before the settlement occurs. This is something that is critical for any Business Owner to understand and guard against, whether you are represented by a Broker or trying to sell your business on your own.

At the time we sign a listing agreement with the Seller, we unfailingly warn him or her to keep the business thriving, as though he/she has no thought of selling. We tell the Seller to continue to make plans and moves for both short and long term maintenance and even increases in sales. We tell them to do everything they would normally do in their human resource areas, so that the employees have no loss of incentive in their own daily activities. The business environment should remain clean and attractive, so that the Buyer is impressed with even the cosmetic aspects of the business, which reinforces the successful look of the business, in every way.

Finally, inventory maintenance is critical! In retailing, there is nothing that speaks to success like clean, organized and well stocked shelves. This is one of the areas we find Sellers to be most deficient, during the sale process.

The bookmarks suggested above, each appear to denote specific times where Seller may let up, thinking he/she can put feet up and relax. It is probably worst once a Letter of Intent is signed; however, in the vast majority of cases, a Letter of Intent does not constitute a Contract of Sale. Either party can walk away, without liability or obligation to each other. But because price and general terms are agreed, the Seller (and the Buyer,) sometimes treat the Letter of Intent as though the deal is done.

As we write this, we are currently engaged in a Retail business sale where this has become a catastrophic issue. We have warned the Seller, (on a weekly basis, both verbally and through email,) about the dangers of reducing his vigilance and keeping inventory up. Those warnings have gone unheeded. Specifically as a result of his allowing the inventory to erode by almost 50% below his normal levels, sales have diminished for the last two (2) months, compared to the same two (2) months in the previous year. The Buyer is not stupid! He can walk into the store, see the partially stocked shelves, and understand that something is most definitely amiss.

Because the attorneys for both parties have been slow to put together the Contract of Sale, this stage of the sale has dragged out far longer than it should. That certainly plays a part in the Seller’s mental state, but it cannot excuse his actions, or reduce the problems it has caused.

The result of this situation is that the Buyer has reduced his offer by 40%, from what was originally stated in his Letter of Intent. The Seller has almost no choice in the matter, at this point. Certainly, he can refuse the current offer, but it will take him months and months to recover the goodwill and resulting momentum of selling activity that has been damaged just over the past two months. We have an alternative Buyer, but that person is also taking a critical look at the current state of revenue and profits, and rethinking the amount to be offered, or whether any offer should be made at all.

The moral of the story is that the deal is never done until the Contract is signed, and you – the Seller – have your money, in your pocket! Please be very careful, Mr./Ms. Business Owner, not to be the root of your own undoing!

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)

The Business Seller, as a Liability

When we speak to people about starting up businesses, or when we speak to Business Owners that are thinking of selling, invariably they will ask when they should get the business ready for sale.  The answer is the same:  You start the sale process when you first start the business!

At any time we are asked to list a small business for sale, one of the very first questions we ask the Seller is:  When we get you a Buyer, and you walk out the door at the moment settlement ends, what happens to the business?  Forget the signs, the widgets you might sell, forget the number of years in the business and the good will; is the business so tied to the name, the face and the personality of the current Owner, that any Buyer is going to find the business slumps, sometimes fatally when the Seller leaves?

If it is a business that is highly dependent on personal sales activity, and that sales activity is closely aligned with the current Owner, there is potential trouble for a Buyer.  When you start a new business, frequently the Owner IS the face of the business.  There may not even be another face in the place, except for that of the Owner.  But if the Owner does not turn over that responsibility to others, he/she can become unquestionably attached personally to the success of that business.

Companies with names of the founder – such as Frank Smith & Company – can have the same difficulty; but over time, if Frank Smith turns the public representation over to others, it does not run the same risk.  Clients do not necessarily need to know that Frank Smith is there.  If they are not dealing with Frank Smith on a day-to-day basis, they may not care, at all.  What they really care about is the person with whom they work on a daily basis; the person the Customer feels knows them and their needs, and will take care of those needs with the most care.

If they were first introduced to the Company’s services by Frank Smith, and gave all orders to Frank Smith, turned to Frank Smith for any problems they incurred with the products or services they ordered, so that good ol’ Frank personally dealt with any complaints and their resolutions, then Frank becomes indispensible to the continuance of the business, itself.  You, as the new Buyer potentially have a tremendous difficulty in overcoming this.  When John Unitas left the old Baltimore Colts, he was such an icon that everyone was going to hate the new guy, no matter how good he might have been:  He was just not John Unitas!  The same happened when Brooks Robinson retired from the Baltimore Orioles.  Sean Connery was such a great movie James Bond, that no one has ever achieved that same allure.  Sports fans and movie goers felt some kind of a connection with these people, and the analogies really have merit.

This does not have to kill a deal.  But careful planning by both Buyer and Seller is crucial.  If a Seller has not established a separation between him/herself and the business, it can mean reducing the price to anticipate losses that are inevitable, when such a Seller leaves.  Sometimes it means a long transitional period, where the Seller stays on to give the Buyer a chance to catch on with the Customers.

In some instances, an “earn-out” is appropriate.  This is when the price is more or less set at a maximum, or in general terms, rather than as an absolute dollar amount.  Payments are then usually made on the basis of the actual performance of the Company after the sale, perhaps on a percentage of Revenue or Gross Profit.  This is typically done over a three (3) to five (5) period, on a declining payment basis.  For example, in the first year, 50% of the agreed amount is paid; in the second year, 35% is paid; in the final year of a three (3) year payment system, the last 15% of the agreed payout is made.  If the business erodes because of the Seller’s disappearance, so does the total amount paid.

This is common in service businesses, where the Principal is an active part of the business and his/her presence is a major factor in its success.  In this situation, business retention is not something that can be taken for granted, as it might be in a Gas Station where the brand and location are more important than the Owner.

One of the biggest deals we have done in this way was a company that was the largest Real Estate Brokerage in its service area.  In that case, the issue was that the Real Estate Agents were not guaranteed to stay with the Company, since they are Independent Contractors and are free to move among other Brokerages, at will.  If they decided they did not want to stay, they could have left en masse, and the Buyer would have been left with nothing but a big, gorgeous, empty office.

The earn-out demanded that the Seller remain with the Company, at least on a superficial basis, sometimes working actively with the Agents in the beginning, then tapering his activities slowly over the three-year payout period.  The earn-out made him a participant in the success of the transition.  Large Hair Salons can be sold on the same basis, because the individual Hair Stylists are also Independent Agents who can leave at any time, for any reason and take their “books” of business with them.

A business with an Owner, who is the key to the historical success of any business should be viewed in the same way.  Understanding how sales leads are generated, how transactions to the business are closed and who and how customer relations are handled are key to understanding whether this is an issue, in your purchase.

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)

Business Sellers: Wake up and Smell the Coffee!!!

No, this is not about Starbucks!  It is about Sellers that are not realistic, do not understand the market, do not understand the economic reality or even their own business marketplace, especially in relationship to selling their businesses!

You have no idea how many calls and e-mails we get each week – from E-commerce Owners, in particular – who have ten (10) people visiting their portals a day, earn a Net of $6.00 a month, have been in business for seven (7) months and want to sell for $500,000 in the name of “potential”.  What are you people smoking!?!?!?

(A.   We never said we were nice people.)

(B.    You may not like what we say, but we are painfully honest with our comments…)

We are not picking on E-commerce people, but we mention them because they seem to be the most exaggerated in their demands, since history actually did permit a greater amount of elasticity for the sale of such companies.  But that is just it:  It is history!

Several things affected the erosion of the E-commerce market.  First, it was the Dot-Com debacle of 2000-2001.  Market multiples in the sales of Internet-based companies of all kinds declined, markedly.  And the market in businesses of all kinds slid in a downward manner, simultaneously.

Second, the market crash of 2007-2008 caused a further erosion of business values of all kinds.  The resulting Revenue declines marked a complete change in the way Buyers and Lenders viewed market trends and what they looked at, in buying or funding acquisitions.  No longer will either party simply assume that a Revenue decline that has appeared to stabilize, will do so on a long term basis, and they will wait to be assured of that fact.  And no longer will a strong increase be viewed as a long term trend, until such a trend is proven.  This means that a startup will normally not be able to be funded, or even taken seriously by a Buyer, until it has proven it can (usually) withstand three (3) years of financial strength, fully supported by Tax Returns.

Third, funding has become much easier to obtain, in purchasing a business, since 2008.  But businesses without Real Estate or other tangible assets to convey, or Buyers without tangible assets for a Lender (and/or SBA) to use as security for the debt, are still difficult.  That lets out high multiples and startups.  Any loan secured by the SBA for more than $350,000 must undergo a valuation by an outside appraiser.  Again – this lets out high multiples!

Finally – and this is specifically directed at E-commerce Owners, although it is applicable to some, others as well – the market has softened, even in areas where growth is evident.  In fact, that growth is specifically why the market has softened.

What we mean here, is that E-commerce companies have experienced exceptional Gross Profit Margins, until relatively recently.  But with the increase in the number of such companies, even some of the most mature, some of the most immense E-commerce companies have seen a reduction in their Margins.  This is common in any industry where competition grows quickly, and E-commerce is not immune to such an impact.

Even if your business has not been adversely affected in this area, if it is happening to the industry leaders, Buyers will assume that it will undoubtedly catch up with yours, sooner or later.  And they will either offer a radically low amount for your business, or (fearing they might insult you,) they might walk away without ever making an offer.

THIS DOES NOT MEAN THAT E-COMMERCE IS BAD!

IT DOES NOT MEAN THAT BUSINESSES CANNOT BE SOLD!

In fact, the market is very robust, right now.

But what is does mean is that the Sellers have to be reasonable with their expectations.  They need to understand the pressures that are endemic in their markets.  And they need to understand that – again, back to E-commerce, in particular – they may have to take a note for a fairly large portion of the financing of their businesses.

The times, they are a-changing, and every-changing.  We need to keep ahead of the curve and change with those times.

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)

Selling a Business? It has to be a Win-Win Situation

Whenever an offer is made, the Buyer obviously has to get the best deal possible for him/herself, both in Price and Terms.  The Seller needs to logically do the same, from his/her perspective.  There is always a balancing act between those issues.

Buyer and Seller both have a need to feel like they “won” something.  The Buyer will naturally feel that he/she paid too much in some cases, and the Seller will feel that he/she gave away too much.  If both feel that way, it may be said that the deal was rather fair, if you think about it.

Many times, Buyers will not look at the motivation of the Seller and the practical issues surrounding his/her position, in making offers that are viewed by a Seller as being unrealistic.  These can kill not only the deal, but any chance of performing a negotiation that does not cause antagonism between the parties.  The net result is that such attitudes will keep both sides from being creative with their thinking, and precluding them from obtaining mutually beneficial terms.

The key is for both sides to be REASONABLE!  The Seller has to be reasonable with his/her pricing and expectations; the Buyer has to be reasonable with the Terms and Price he/she offers.

What is reasonable?  It varies from deal-to-deal, and a good Broker will help in making that clear.  A bad Broker will simply make a difficult situation worse.

As an example, we are dealing right now with a very viable business – one that has a strong history of growth, no imminent impediment to future growth, excellent financial records to take to the SBA and no real reason for the Partner-Owners to sell, except that they differ in the direction the business must take to accommodate future growth.  They have decided to part, selling after doubling the business’ size in the four years they have owned it.  So, there is no divorce, no terminal illness, no one is so angry that they cannot wait for the right deal.  All of this has been explained to the Buyer.

The Buyer is terrifically experienced, has great potential to grow the business further and can qualify for an SBA loan; however, he is in a slightly difficult cash position.  Through his offer, the Buyer has stated that he wants the Seller to allow him to come in with almost nothing in the way of a deposit, (with more at contract signing,) he wants the Seller to take a large second position note to allow him to conserve his limited cash, and on top of that, he is offering 30% below the asking Price.

It ain’t gonna happen!

There is nothing in this deal to allow the Seller to feel secure about this Buyer’s ability to operate successfully, because of his poor cash position; there is nothing to make the Seller to feel warm and fuzzy about the price; the Seller is taking a risk by taking part in the financing by taking a note; and if the Buyer should fail through no fault of the Seller, the fact that the Seller’s note is in a second position means that he will, in all probability, simply lose any hope of getting any part of that note back, through legal action.  In essence, all the Seller would be getting for certain is about 50% of his asking price, with the recovery of remainder perceived as being highly questionable.  There is no semblance of a “win” for the Seller; any “win” is solely on the side of the Buyer.

Some Buyers appear to have this attitude that the World owes them; that they have some sort of God-given right to purchase a business, and the Seller should do anything and everything in their power to accommodate that acquisition.  This is not a reasonable position!

And some Sellers believe their businesses should bring in prices that are far above any price that can be qualitatively and quantitatively supported.  One of the statements we hear, when we suggest that the price is too high, is something like:  “Yes, I know the price would normally be $X, but if the Buyer does this, than and the other thing, the business can double with the foundation I have laid!”

Our answer is:  “Then YOU do those things!  And when you accomplish them and the Revenue/Profits grow as a result, then call us to list your business!”

Sellers, you cannot expect the average Buyer to pay a premium for your business, for the privilege of expanding the business through his/her own efforts.  The Seller is getting paid on the basis of the good will and infrastructure he/she has generated, normally as expressed as a function of Adjusted Cash Flow; the Buyer increases the value of that same business through his/her own work ethic and the investment he/she makes in the further expansion of the business.  The Buyer should not be asked for making the business grow, through his/her own activities.

If either party comes into the negotiation with unrealistic attitudes or expectations, both will be sadly disappointed at the result.

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)

Scams in Selling Your Business

So, two priests walk into the Parish House and turn on their computer…  No, this is not the start of a bad joke.  Well, actually it really is.  Except that the joke was on the priests when they fell victim to a money scam from outside theUSA.

Such scams are everywhere – not just from outside of the US.  Any time there is $1 at issue, there is someone RWA (that’s business lingo for Ready, Willing and Able,) to make a grab at that Dollar, in the most inventive and intricate ways.

This will be our longest post, to date.  So get comfy…

We have seen/heard about a terrible, apparent epidemic that has seems to have befallen Business Owners and forced them to sell their EXTREMELY PROFITABLE businesses at sacrificed prices.  It would appear that each of these people have had fathers, mothers, sons, daughters, husbands and/or wives that are dying, and require the Business Owner to give up his/her business, in order to care for the terminally ill relative.  Except that it seems that it was all a scam, in many cases.

The Sellers use this sob story to get you to buy into their grief, thinking you would not then be the kind of person who would lie – not while sacrificing so much, in order to take care of a sick loved one.  They believe that you would suspend the deepest research activities you might normally take, because this is such a good deal, and from a person with such a good heart.  They might even take a note, because if they get the down payment, they have made sizable money!

In this very real example, you see that “Business Owners” can be con artists.  What is really sad is that these scammers make it difficult for the Business Owner that really has a relative in trouble, because now everyone is suspicious of such stories.

Brokers can be con artists as well.  (We are Brokers; therefore, saying this is particularly difficult for us to do!)  They can exaggerate earnings, potential, competition – you name it!  It is difficult to determine who the guilty party may be, if you find erroneous information coming from the Broker, because sometimes they will simply provide the information that has been given to them by the Seller.  It is no less difficult for them to validate such information as it is for a Buyer.  Whether it is a Broker or the Seller does not matter; your challenge, as a Buyer is the same.

We know of a series of false Broker-issues that occurred, exemplified by a call we got from a prospective Seller inVirginia.  The Seller said he had a business to sell that would bring in a price of $2 million.  Obviously, we got in the car and headed there, immediately.

We met to go over his Company Tax Returns and after about two hours of work, we were forced to tell him that, in our preliminary analysis, the business was only worth about $650,000!  The Owner was obviously crushed, and we asked him where he got the idea that the business was worth $2 million?  He replied that it was from another Broker.  So, we asked, if the other Broker gave you such a great price, why did he not list with that person?  The Owner replied that he wanted to, but that the Broker wanted $5,000 to provide a final report and list the business!

We were forced to tell the Business Owner that the Broker he was apparently dealing with previously was not really selling businesses; he was selling BAD price opinions.  The idea is to get the Business Owner all excited about the exaggerated price, which in turn gets many people to forget common sense, or push them into questioning the information the con artist provides them.

This is not the first time we have seen this kind of scam.  There was one company that ended up recruiting representatives nationally, to do nothing but sell these kinds of false reports.  Their pitch was that they could provide the Business Owner with a price analysis, allowing the Owner to use this documentation to sell their own businesses, and save themselves a lot of money by not using a Broker.  They charged $7,500 and more, and there were a LOT of Business Owners that bought into this concept.

In all honesty, we sell a Price Analysis program, ourselves.  But there is an easy way to validate the price that is obtained from us and any other Broker around – and we can show that proof with every transaction.  The way to do this is to take the information, (if the Broker does not already do it for you,) and actually to the math to determine whether the Cash Flow justifies the price quoted.  It is fine to look at Depreciation schedules and the present value of Capital Equipment, but in Small Businesses, that information should not represent the overwhelming majority of the value.  Overpricing practices such as those suggested above do exactly that:  They impress the Business Owner with valuing practices that look great, but do not have anything to do with the ability of the Buyer to afford the purchase or obtain a loan to make the acquisition.  In mid- to large-sized businesses, there are other issues; in SMALL BUSINESS, Cash Flow is overwhelmingly vital determinant in price!

The Business Owner or Buyer, in any analysis of an opportunity to sell or buy, MUST perform this critical test.

There are many other types of scams out there.  There are some with Buyers, (in the absence of a Broker to act as an intermediary or an attorney to advise the Seller,) providing small deposits with a contract that actually allows them to take over the business immediately; the Sellers later find out that the contract have signed leaves them no further ability to obtain the balance of the price.  They have sold their businesses for just the deposit money, without realizing it.

Or, the Buyer that is requested to provide a deposit, only to find that the deposit money is not refundable.  Some of these kinds of scams are run against people – Buyers and Sellers, alike – with whom English is not their original language.  The agreements are confusing and constructed for that very reason.  The terms are verbally explained, but are not always what is actually written in the contract.  The target of the scam signs in good faith, but later finds out that he/she is legally bound to something that was not at all what he/she understood it to represent.

But the biggest scams we are now seeing by far, are those involving lending processes.  The crash of the credit system in 2008 has made acquisition funding more complicated and difficult.  People are desperate for sources of loans, and the con artists have taken note.

But so many of these scams are uncovered by doing the most routine kinds of research.  And the tool is right there at your fingertips, as you read this:  It is called The Internet!  Look at the company that is promoting itself and find out whether it has any history.  Is it licensed to do business in the area in which it resides?  Does it offer references?

Complaints on the Net are not always a barometer of whether a given company is legitimate.  The complaint may be due to the fact that the individual lodging the complaint did not get what he/she wanted, but not necessarily because the loan company did anything illegal or dishonest.  With loan applicants, it may be that either the applicant had faulty credit or insufficient capital to bring to the transaction; or the business they wished to buy is overpriced, or otherwise not a good lending candidate.  Applicants that have been denied can be unreasonable and viscous in their comments.  Unfortunately, the Internet invites that kind of anonymous commentary.

The key is to look at trends.  Staying with the lending theme, have an inordinate number of people had the exact, same complaint?  Or, are the complaints so incredible sounding, as to at least warrant that you do more digging, before committing to that company.  One example was an applicant that said he was told by the “lender” that it was having a cash crunch, and that he (the applicant) needed to put money into the system for that lender to continue the application.  This occurred on several occasions and the applicant said he ended up spending $8,000, until he realized he was being taken for a ride!

The point there is, if you are borrowing money, why would you need to lend the lender money, in the first place?!?  People do irrational things, then money is waved at them.  The key word to us is REASONABLENESS!  You need to use reason, with all transactions of this kind.  If it does not smell right, DON’T PLAY THE GAME!

Case Study

One group with which we were trying to work on an extremely large transaction, promoted itself to be out of Manchester,England.  It said it had the ability to lend up to $500 million.  ALARM #1:  A company like that would go through high level networking to get its leads, communicating at the top of corporate ladders, rather than promoting itself on small business forums on the Net.  They do not need the small business Buyer!

We played along, to see how far this would go.  ALARM #2:  The company had no Web Site and the e-mail address was a gmail account.  The principal told us his Web Site was down for maintenance.  That has happened to us, but it did not affect our e-mail account with a domain name attached.  Why would a company that is worth a half a billion dollars use a free e-mail account?

ALARM #3:  The language used as poor, in terms of both its vocabulary and sentence structure.  This was particularly noteworthy in the contract the company offered.

ALARM #4:  We asked for proof that the company had that kind of money at it disposal, and it provided us with account numbers, telephone numbers and even a contact person, for a bank out of Singapore, with branches in Britain.  The information we were given was purported to be directly from the bank.  However, that contained questionable information, including the fact that it supposedly listed the company’s complete account number.  NO bank in the World is going to send out account numbers to an anonymous individual (like us) over a fax!

ALARM #5:  We called the bank, in England.  The contact person listed in the documents given to us by the supposed lender was a name that was completely unknown to the bank, and the bank’s customer service representative said the account number we were given was not a correct number.  When we questioned the lender, he insisted we had done something wrong, because the account number was complete and accurate.  Double-checking the information with the bank yielded the same result.

FINALE:  Up until that time, when the lender’s principal called on the phone, Caller ID had always showed the caller’s number as “Private”.  The discussions became so heated that the principal called several times, and the last time divulged some interesting information by allowing the true telephone number to come through:  That number showed that it originated with a 234 Country Code.  Since we have done international business in Africa, we immediately knew that the phone call was coming from Nigeria – not Manchester, England!!!

It must have been such a successful scam, that an almost identical con artist ran advertising a few weeks later.  When we questioned that one, we were actually the recipient of a mild threat.

Keep in mind that not all scams involve you giving the con artist money.  In the lending application process, you will be asked for Social Security Numbers, Bank Coordinates and so forth.  In this electronic world, that kind of information can lead to Identity Theft, which is far more dangerous to you, than $5,000 out of your pocket!

Remember:  If it sounds too good to be true, it normally is.  When lenders promise funds without security, without regard to your credit score and so forth…run, do not walk to another source of loans.

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)