Smart buyers and sellers should see intentions, credit reports

Periodically I get questions from readers. In this week's article I would like to publish a couple of the more recent inquiries.

The first question came from a prospective buyer in Reno. He has a well-paying, secure job with a local Fortune 500 company which he does not intend to leave.

He is not comfortable with the returns that the stock market is throwing off and has recently sold some income property. He is unsure of where the local real estate market is headed and would like to invest in a business.

He has grown frustrated with the lack of availability of profitable absentee-run businesses that are for sale and was wondering why that is the case.

The short answer is simple. If an individual has a profitable business that does not require much or no effort on the owner's part, why would they be interested in selling?

The longer answer is that there just aren't that many absentee-run businesses. And when there is one, the odds are that it is only marginally successful or is very expensive. It is difficult to find a well-run business when the owner is involved. It is even more difficult to find one where the owner isn't.

I also cautioned him that if he were to find one, be cautious and make sure he fully understands the seller's motivation for wanting to sell. If I was able to make money and not put forth much effort, I probably wouldn't be too motivated to sell, unless I was aware of something adverse that was happening with customers, competitors, equipment, etc…

The second question came from a Reno business owner who has been solicited by a potential buyer about selling the business. She was wondering if her position of not releasing any financial data until she had a chance to review the prospective buyer’s personal financial statement was valid.

I shared with her that her position was logical but may need to be more thorough. Seeing the buyer's personal financial statement is a good idea because there is no sense sharing her proprietary information if the buyer is unable to financially complete the transaction.

However, she should also get a copy of the prospective buyer’s credit report and resume. If the buyer has a strong financial statement, but no experience in the owner's field, there could be cause for concern.

If the buyer has the financial wherewithal and solid experience but has had two bankruptcies in the past 10 years, the seller should know this, too, before releasing any information.

Also, the seller should insist on having the buyer complete a non-disclosure agreement outlining, among many things, that the buyer will not discuss or communicate any details of the possible transaction outside of a few select people, such as their attorney, accountant or significant other.

The last thing the seller needs to have to deal with is having her employees, customers or competitors find out what her intentions may be.

Buzz Harris is a Licensed Business Broker with The Liberty Group of Nevada. Contact him at BHarris@TheLibertyGroupofNevada.com.