If you read my blog last week, you already know about my partner Fred Hall’s bad day. He walked away from a potential client (business seller) that seemed to be misrepresenting the business. Yesterday I noticed that same company has now appeared for sale on the Internet – grossly overpriced.
Fred walked away when it became apparent that the company was not completely honest about the fact that they are in trouble, and that the owner was planning to leave the country. I wish I could say more and even name the company, but we don’t know all the facts and I would hate to harm a company based on incomplete information. Heck, it may even be a completely different business listed since the listings are “blind” and don’t indentify the business. But probably not.
One of the first things Fred does, as a trained business appraiser, is to determine the earnings level of the business. He didn’t finish a valuation, but he said he didn’t see how the historical earnings were greater than $700,000, even though the owner claimed a higher number. At the most he thought the business might be worth $2.5mm before he met with the owner and then decided it was worth far less based on the fact that current earnings were close to zero. As in a
The listing on the Internet is at a price of $3.5mm and reports earnings of well over $1mm. From the looks of it, the listing broker didn’t challenge the seller, and just took the information and put it up on the web and is hoping to get lucky. My educated guess is that he will not get lucky, and that this listing will cause him grief.
We all know it happens. We all know there is a lot of junk on the market But this is another reminder to take a careful look at any companies you are interested in. If you don’t feel comfortable with your analytic abilities, get a professional on your side (not the seller’s broker) to represent you.