Do All Sellers Lie in Business Acquisitions?
In this video, Matt reacts to a story about a business owner who helped a person looking to buy a laundry mat. In the story, it is implied that the sellers lie about the business to get a better sales price. Matt explains his experience with helping businesses in the due diligence process and how this isn’t always the case.
There are tons of people out on social media giving business advice. Some of it is good advice, but most of it isn’t good. In this series watch CapForge’s owner react to different advice videos. He’s an expert in all things business and has 20+ years of experience under his belt. Some of the things he reacts to might even surprise you!
Video Transcript:
Business Advice Video:
This is why you need to be too careful when you’re buying a business. Young lady comes to me for advice about a business that she’s wanting to buy. What it was was a laundromat. I was more than happy to help her. She brought in all the paper that she’d been given on that laundromat. And when I broke down the water there was not enough water being used to justify the gross revenue. So I knew that they were lying to that lady. You can’t believe what they’re saying you have to listen and then verify what they said is true.
Matt’s Review:
Yeah well, I mean as somebody who does due diligence all the time for people looking to buy businesses this is 100% accurate. And in my experience, it’s not so much that people are outright lying to you like in this case, where he’s saying they were, you know, the water they were using didn’t justify the sale, so they were making stuff up. That’s very very very rare. People don’t generally go to the trouble of fabricating documents like bank statements, and tax returns, and financial statements to trick you into believing that a business is doing better than it is. They’re either asking too much to start. Or a lot of times their accounting isn’t as good as it should be. Or they’ve been overly generous with adding back things that – they say oh the business doesn’t need to spend that but really it did. Or there’s 700 other ways that the numbers don’t exactly match what it is that they’re claiming. So you definitely before you buy a business need to take the time to check it out and understand what you’re getting. Verify that what they’ve told you is accurate and applies to you, not just applies to them. But even more important than any of that, I think it’s really that you have a plan to grow the business. You have a way to take it from wherever it is now to 50 to 100% larger over the next three or four years. If you have no idea how to grow the business you’re buying, then what’s gonna happen is the business you’re buying is going to shrink. And it’s going to become harder and harder to get money out of it. Harder to make those loan payments. Harder to justify the investment at all. So I think the No. 1 best thing you can do if you’re looking at buying a business is to understand how you’re going to take that business and grow it. And if you’re not clear on that then take a step back before you do anything else and figure that out. once you have a plan, a reliable provable plan that will work to grow a business, then do the due diligence and understand that you’re really getting it at the point where you think you’re getting it. And then you can move forward with the rest. But without that piece, I think really the whole idea of buying a business is much riskier than you’re expecting. Because a growing business is a dying business. And a business that dies isn’t one you wanna buy.
