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conartist

Caveat Emptor – why it should read: let the 'seller' beware

Business sellers should watch out for scam buyers and confidence tricksters.

If you own a business and receive an unsolicited offer to buy your business please be careful. If your business is currently for sale be even more cautious.  

There are con-artists that have developed a clever process of taking your business from you and leaving you not only with absolutely nothing, but also totally destroying your business and leaving you in debt.  

Here's a basic breakdown of the process...

The con-artists' easiest target is to contact the owners of a listing on BusinessesForSale.com and identify themselves as acting for a private party or a small investment group.  

If the business is being listed for sale by a business broker or intermediary, they will try to build a strong relationship with the seller.  

If they feel the broker is an impediment to what they are doing, they will try to get them out of the way by informing the seller directly that the broker is a hurdle to closing the deal.  

Once they have a good relationship with the seller, they then make a strong offer on the condition that they finance the deal over a short buy-out period (say six-to-10 months).  The offer will include a small down payment of 10% of the purchase value, for example, AND will constitute a stock sale (not an asset sale.)  

"Con-artists are generally looking for businesses that have at least an $1m asking price"

Under this scenario, the seller holds all of the stock of the corporation as collateral and of course, the sale includes the cash, accounts receivable and other items per the balance sheet.  

Once this 'buyer' pays  the seller the 10% deposit, they then require signature rights to the business bank accounts, credit cards and other assets while the seller "trains" them in the day-to-day operation of the business for the agreed two-to-four week training period.  

Once the training is complete, the buyer cleans the business out the cash, runs up the credit cards and factors the accounts receivable. They may also sell off or secure loans upon the fixed assets (vehicles, etc.) without paying any payable/liabilities.  

They even sometimes fire employees, usually never paying any of the business or employee payroll and other taxes.  Then, they disappear in a month or so having cleaned out the company by taking all cash. 

These scams really do exist. It's another reason to make sure your business broker is part of an association of business brokers such as the International Business Brokers Association.

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Andrew Rogerson

About the author

Andrew Rogerson is a five-time business owner who specializes in business transfer transactions. For business owners who wish to sell their business, Andrew partners with them to value their business, understand tax issues, market the business to potential buyers and handle all parts of the transaction including third-party lending, due diligence and escrow. For entrepreneurs thinking of business ownership, He partners with them to determine their best option – buy an existing business, buy the rights to a franchise or start their business from scratch. He is the author of four books on business ownership called Successfully Start Your Business, Successfully Buy Your Business, Successfully Buy Your Franchise and Successfully Sell Your Business.

@Andrewrog

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