Why do so many business owners seem to be oblivious to standard requests from prospective buyers?

[larry]

I am so confused. My husband and I are looking to purchase a dry cleaning business. We have looked at several businesses and have requested various documents which we believe to be standard, especially when signing a non-disclosure agreement. These documents have been such things as profit and loss reports, balance sheets, previous 3 years worth of taxes (probably a Schedule C), list of equipment/valuation report, etc. In order for us to do due diligence, we feel like we need these things. Every single time we have requested this information, the owners look at us as if we are running a scheme and the say something like "My taxes are not completely correct because I don't report everything, so it looks like the business is making less" or they say "My lawyer says you have to make an offer first." Don't we need this information before we make an offer or am I missing something? The point of us asking is so that we can make an offer that is informed. We are so stressed and confused and we always say if "you want us to sign a non-disclosure agreement then we will, we have a copy of one." Then they say "what...what's that?" This is really frustrating us and we are finding that a lot of business owners (everyone we have encountered) seem to have no idea what they are doing and are throwing out random amounts that they want for the business and have based it on absolutely nothing but "I really love the business and think it is a good business, but I have to stop for personal reasons." This has nothing to do with the value of the business. Additionally, when we ask if any seller financing is offered, they look at us like we have 10 heads and say "what do you mean." Can someone please please help me understand what the heck we are doing wrong? We have been looking for a business aggressively for over a year and every single time we are interested the same thing happens. How is it possible for a lawyer or accountant in some cases to say something like "tell them to make an offer first" when we have looked at absolutely no records. Second of all, how is it possible that we are the ones mentioning a Non-Disclosure Agreement in the first place? Wouldn't it be in the owner's/seller's best interest to request one? We feel like we are educating business owners from whom we are trying to purchase from. So frustrated. Please help.

[dana]

Sorry to have to tell you this, but most small business owners aren't that smart. You are asking for standard things to a business professional, but you're asking it of people who may be immigrants, not have a high school education, not know the first thing about running their business, they just know how to dry clean.

Knowing this, the first thing to do is determine if purchasing one of their businesses is the right way for you to go, or if you should just start your own and put them out of business?

I suggest you hire an independent auditor to go over their financials. The auditor will be able to give you the info you need to make an informed decision. If they refuse to let the auditor go over their financials then you don't want to do business with them anyway.

[jarel]

Angie gave you some good insights. Allow me to share mine.

I have purchased and sold several professional practices. I would never do either without working with an experienced practice/business broker. They earn a fee from the sale, but they do EARN that fee!

Prior to a written offer, the sellers should provide you with summary overviews of the information you are asking for, such as:

1) List of all equipment
2) Basic financials such as annual gross sales, expenses, and taxable profits for the last 2 to 3 years. If they are fudging on their taxes that is not your problem, it is theirs. The "profits" they actually paid taxes on are all that matter.

AFTER you have submitted a written offer and negotiations begin, they should then DOCUMENT IN DETAIL all of the relevant data with copies of P&Ls, state and federal taxes, etc. You may want to have your accountant or an auditor review these documents as Angie suggested.

If you ask about owner financing and they appear "clueless" then you know owner financing is off the table.

Bottom line. Only purchase an existing business if it provides a cheaper cost of entry into that type of business than opening your own business from scratch. Any business you purchase will have "issues" that will become your problems to solve.

Best wishes and good luck.