Show me the money! 
The lighter side of a serious issue...
Too often, a typical scenario looks like this-
Buyer finds a business for sale. (usually for sale by owner)
Looks at it.
Likes it.
Meets with seller.
Small talk so the seller will like the buyer.
Then the buyer says-
"We really like your business and are very interested. We would like to look at your books (tax returns, P & L, income and expense reports)"
The buyer just blew the biggest chance he had!
50% of the sellers will agree to show you their books and the other 50% will say submit an offer in writing first. The buyer has nothing to lose. Unless, that is, he was a real buyer for that business. Most of the buyers out there are professional lookers. Some buyers call today, that have called me five years ago. They are still looking for the same business!
Now that you've got the sellers books and analyzed his income and expense reporting techniques, what are you going to do with it? Were you testing to see if he was telling the truth? Now that he has put his books where his mouth was, are you going to put your money where your mouth now is? That move could cost you significantly.
I know. I know. How can you make an offer without looking at the books?
More importantly, let me ask you now, how can you 'renegotiate' your offer until after you have looked at the books?
Unless you are a business broker, or a seller who has run an ad in the Wall Street Journal, you cannot begin to imagine how many buyers call or visit and say "I would like the last five years tax returns, profit & loss, and by the way do you have audited statements?"
OK, you've got the books, everything the seller told you was true. It's all there in black and white. What can you do now?
"We'll think about it?"
or
"We'll get back to you?"
There is nothing to think about. He told you it was X amount of dollars, you said you were interested, you wanted the books, great! Are you going to nitpick about a few discretionary cash items, write-offs, 179s or the fact the seller paid his mother to answer the phones?
The proper way, would have been to meet with the seller, learn about the business. But more importantly, sell yourself and your ability to purchase the business. Are you paying all cash for the business? Let the seller or broker know up front. It may make a significant difference in the price, attitude and disclosure. Are you seeking outside financing? Again, share it with the broker or seller up front. The broker knows what businesses will and will not qualify for SBA funding or finance company participation. Have you already been approved by the SBA as a preferred purchaser? Let the seller know! Most sellers hear SBA and think nine months, they don't know it can be done in 30-60 days when things are in order ahead of time. The broker knows...
You are not merely trying to buy a business, you may be competing to buy a business. And if it is a good one, you will be competing to buy the business. The broker could have ten businesses for sale, each with ten people interested in buying it. You are but one out of the ten times ten. You will have one chance to make an impression.
The buyer who gets the business is the one who came in with VOF and VODs or a letter of credit from the bank or attorney. (Verification of Funds and Verification of Deposit)
"Hey, you want to see the seller's books be prepared to show him yours first."
This is where the buyer went wrong originally. When our buyer at the top of the page asked to look at the books, he was not a buyer, not even a prospect yet. He was a suspect. Had the buyer come in with his own financial books in order, a neat business acquisition plan, the broker or seller would have said "Well, would you like to see the books and records with your coffee?" Can you see the difference in the power of where you can negotiate from?
There is negotiation and then there is re-negotiation. When you ask to see the books and then make the offer, you have no where to go. What if the books were better than you expected? Think you can still make a lower offer? You'll be lucky if the seller doesn't raise the price as you had no commitment in writing. When you make a written offer with a deposit, subject to inspecting the books and verifying that they are within 5% of the offer made to you by the broker or seller (and the same selling offering is attached in writing to your purchase offer) you are negotiating from a position of power. You are saying 'here is my offer, accept it or reject it and prove your claims of income. I have already proven my ability to purchase.' But even better, if the inspection shows discrepancy, you now have the ability to re-negotiate your offer into a more favorable position for yourself.
For some of you that say you don't want to disclose your finances as you are afraid the seller will raise his price if he knows how qualified you really are... I can appreciate where you are coming from. I used to feel that way too.
These are some lines that do not work as well!
My favorite is the guys who say "That information is personal, we can't disclose that to just anyone." (no money)
The roll up artists that say "We represent a closely held company, we are not at liberty to disclose our financial assets." (no money)
"I have backers and I just need to find the right business." (no money)
"I am going to collateralize the assets to purchase the business." (no money)
"The seller will hold a second and the SBA will lend the balance." (no money)
"My Uncle Louie is wealthy and always wanted to back me..." (no money)
"DON'T WORRY! I can afford it." (no money) Usually wearing a fake Presidential Rolex with a nugget band.
I do have to give credit where it is do.
One of the all time best was a seller that said to my buyer, "If you've got two million liquid show it to me. Otherwise this meeting is over." (I had warned the buyer ahead of time.) He produced stock portfolios, and money market accounts. He also had arrived to the appointment driving a Rolls Royce.
The seller had always been a pain, but with this prospect, he waived me aside and said to the buyer "never mind what his listing says ($2.8 mil) I like you. We are asking $2.2 mil."
Just like that, $600,000 was knocked off the price and the negotiations had not even begun! Oh yeah, I later learned the Rolls was rented for the day!
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