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If I purchase a business and then realize that the business was not making the money it reported. What to do?

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Answers (3)
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How to Buy a Business
WA

This why you insist on seller financing. You can also use earn-outs and holdbacks to further protect yourself in some situations. Finally, there's the Representations and Warranties of the Seller section in the Purchase Agreement.

Sep 12, 2009
Jon Holmquist
Edgemaster Model 400 sharpener
President
Marion County, OR

If you have bought a franchise you will have the Disclosure document on your side providing you can verify the earnings claims that were made. If it isn't a franchise, you don't have that protection. Just one more reason to consider one of the thousands of franchises out there.
Good luck, but don't hold your breath. Jon at Edgemaster Mobile Sharpening

Sep 12, 2009
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I am not a business lawyer but my guess is that caveat emptor or some derivitive of it applies here unless expressly guaranteed in the sale contract. There is always a due diligence period which is your time to verify sales and profits. Tax documents are key in this case if you want to see what a company is doing. I can't picture three years of someone filing inflated tax returns that would cost them money to sell a business a few years later.
Don could probably answer this better than me. I assume there is recourse for blatant fraud but I doubt you would ever see any money back.
If you are looking at a "cash" business then you have to do a lot of extra work, including looking at daily receipts and deposits (both cash and credit cards) and going to the business at various times (several times also) and use good old fashioned common sense-- if the there is a line out the door and cogs on an item is 1.00 and they are selling it for 7.00 you got a winner.
remember-- if it is too good to be true then it is too good to be true.

Sep 11, 2009

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