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First of all, I would use some common sense. If he's offering to sell his business to any random customer that walks through the door, be skeptical...very skeptical. "Hey! If you buy this mattress, I'll throw in the whole damn store!" Even though it sounds like a good deal, it's probably not. However, if he owns three stores and a couple of buildings, he probably doing something write.
The reason I say be skeptical, is because most business owners use business brokers to sell their businesses. It's usually the best way to get the best possible price. This is because brokers contact many potential investors and try to get a bidding war started. So when people avoid this process, it's make the hair on the back of my neck stand up.
Because he's offering to sell you this business in a 1.5 years, seriously take advantage of this. Seriously!
You should do something along these lines.
First: Hire an accountant to help you go over the books, you need to do this anyways. Then wait for the economy to get worse, in another six months it will be worse...and by then he'll be sweating balls. Then, when the economy is real bad, and he can't take it anymore, make an offer. However, make this offer through an "Option" of some kind.
Second: In order to structure this "Option," hire a lawyer. What this means is, six months from now, you'll make an offer to buy the company in 12 months. Lets say you offer to buy it for $300,000. This "Option" will allow you to, in 12 months, walk away from the deal if the economy is even worse and you don't want to go through with it. However, if the economy is better, you can exercise your "Option" to purchase the company for $300,000 even though it's now valued at $500,000 due to the better conditions. And, make sure this "Option" gives you the right to purchase it at that price so he can't turn around and sell it to someone else. Like I said, hire a lawyer.
He will be open minded to this "Option" idea because, in six months, when the economy is tanking worse than imagined, he will be more than happy to lock in any price.
This is how you take advantage of peop...er umm...of this situation.
With that being said, these "Options" aren't free. You'll probably have to pay him $20,000 for it and you will not get it back if you walk away from the deal. It gives you the right to buy and you need to purchase, and risk, that right to buy. It's a gamble, but that's what makes it fun.
That's it for now.
Edited by: nahtan - Nov. 21 2008 at 7:02 PM
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Hi Antwan,
I worked for a company that had stores in three states. By outward appearances, the company seemed to be doing well. The owners then put the business up for sale. A larger company came in and spent three months going through every area of our company. This company then walked away from the buyout offer. Here are some issues raised by the larger company.
Our company was involved in numerous lawsuits over non-payment of outstanding invoices. Also, most of our suppliers had stopped doing business with us. We were still selling product, but we had a hard time replenishing our inventory because we had been cut off. These issues were deleted from our general prospectus given to potential buyers.
We had approximately $300,000.00 in on hand product inventory. Unfortunately, only about $50,000,00 was working inventory. The other $250,000.00 in inventory was useless parts various supervisors had put into inventory for one reason or another. We paid an inventory tax on these items, but never recovered our warehousing cost on these items because they never sold.
Approximately seventy percent of our customers were a year to two years behind in their payments. They all should have been cut off a long time ago. But, they were all personal friends of the owners of our company. We had lawsuits pending against many of them as well.
The company had come close to bankruptcy several times. A fact that was not provided prospective buyers of our company unless they asked.
Also, carefully review ownership and lease agreements on all three stores. The stores may have deed restrictions that go into affect if he sells the business. Or, the owner may have used the stores as collateral on a loan
Bottom line here, spend the next year and a half looking at all aspects of the company. Not just the areas he wants you to see.
Edited by: nevadascul - Nov. 25 2008 at 1:24 PMGoals are attainable at any age. It just seems to take longer the older we get. - S. Patrick Culshaw
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