This article is a continuation of Part 1 of the Things That Can Go Wrong During a Sales Transaction. Part 1 discussed the things that can go wrong from the Buyer’s side and Part 2 will discuss how things can go wrong from the Seller’s side. Restaurant Realty can work with a Seller before the business is listed for sale to help eliminate or reduce the potential problems listed below when possible.
How Seller’s Actions Can Void the Deal:
- Seller’s Remorse – Seller’s remorse means that the Seller has second thoughts about selling his or her business and may want to back out of the deal for several reasons. These reasons may include the following:
- The Seller feels that he or she is not getting enough money from the sale.
- The Seller feels that it is the wrong time to sell the business and that waiting to sell it during better economic times might get a higher selling price.
- The Seller is concerned that he or she may not know what to do when there is no longer a business to run.
- The Seller has younger children and starts thinking that maybe one of the children may want to come into the business in the future.
- The Seller feels that with the new developments going on in the area the business may get significantly stronger and may become substantially more profitable. f) The Seller examines the tax consequences of the proposed transaction and realizes that the after tax proceeds, may not be enough to live on.
- Restaurant Realty will have extensive conversations with the Seller before the business is listed for sale to determine the reasons the Seller wants to sell and if the Seller is not fully committed to selling the business at this time, Restaurant Realty will advise the Seller to not list the business.
- Seller Goes Bankrupt During the Transaction – There have been some situations where a Seller is forced to file bankruptcy during the transaction which means the business is no longer saleable and physical possession of the premises is taken back by the landlord. Without a premises lease, a business is not saleable.
- Seller Gets Evicted During the Transaction – There have been several situations where the Seller gets evicted during the transaction for nonpayment of back rent. After the Seller is delinquent for back rent the landlord can file a three-day notice whereby the landlord legally states that if the tenant can’t pay the back rent within three days a legal process will begin whereby the tenant will be legally evicted and removed from the premises and the landlord takes back possession of the premises. Restaurant Realty would examine the financial condition of the business before taking the listing to advise a Seller how to avoid getting evicted and how to avoid bankruptcy.
- Seller Can’t Support the Financial Statements – There have been situations where certain representations are made by the Seller regarding the financial condition of the business and these representations cannot be supported by the appropriate financial documents whereby the Buyer decides to withdraw from the transaction. Restaurant Realty, when possible, will review the tax returns and profit-and-loss statements for the past three years as well as the year-to-date sales tax returns and year-to-date profit and loss statements for the current year before we take the listing.
- Premises Deferred Maintenance Is Too Extensive – There have been situations during the Buyer’s due-diligence period relating to the inspection of the physical premises when it was determined that the corrective work was so extensive that the Buyer would walk from the deal. In many cases this can be solved by the Seller giving a credit to the Buyer for completing this corrective work after the close of escrow or the Seller completing the work to the satisfaction of the Buyer before the close of escrow. Restaurant Realty will advise the Seller to make sure everything is in good working order and that the Seller has completed a Change of Ownership Health Department Inspection so the Seller knows exactly what corrective work the Health Department is going to require before putting the business on the market.
- Lawsuit Occurs During the Transaction – There have been situations where a lawsuit is filed against the Seller during the escrow period which will prohibit the deal from closing until the lawsuit is resolved in most cases. There is not much Restaurant Realty can do in this case other than to advise the parties not to proceed further in the transaction until the lawsuit is resolved.
- Tax Liens Are So Large That They Wipe Out Seller’s Equity – There have been numerous situations where the Seller has incurred tax liens larger than their equity. This means there is not enough cash available to pay off the Seller’s debts which has resulted in the deal not closing. Restaurant Realty will review the possibility of these items occurring before we list the business for sale.
As a result of Restaurant Realty’s extensive experience in dealing with all of the above situations, we know how to advise the Seller appropriately regarding the feasibility and timing of listing and selling your business.