Lately we have had a run of customers, who would have us believe they are buyers, asking for lots of information and trying to do their due diligence on a business purchase before they make a bonafide offer.

It is often hard to know how much information you should get before making an offer on a business that is for sale.   I also recognize that different brokerages treat the subject differently.  Some require that a customer make an offer before they even get access to any real financial information.  We don’t work that way.

We believe we have to give the customer enough information to make a reasonable judgment about the business. We most always provide financial summaries of recent tax returns or owners P&L statements.  We usually provide equipment lists, and we as accurately as we can represent all the assets that are being included in the business.  We also arrange visits to the property and visits with the Sellers.

However, it is unrealistic to expect a Seller to provide volumes of detailed paperwork or to allow the inspection of equipment, or to allow other professional inspections of the property, without an agreed upon offer to buy the business.   For that matter, it is really a waste of the customers time to go thru all that if they don’t have an accepted offer on the business.  It is also really not appropriate to have any interaction with customers or suppliers of the business before you have signed P&S agreement.  Businesses have been seriously damaged by interactions between would be buyers and suppliers and customers.

We include all kinds of inspection and financial record review contingency clauses in our purchase and sale documents, and often see buyers bringing in other lawyer drafted documents with more pages than ours, so we go out of our way to let the buyer review all the facts about the business before they go to closing.

One of the main reasons Sellers hire us to handle the sale of their businesses in to protect them from any unnecessary intrusion of the selling process on their daily conduct of business, and to protect the confidentiality of the sale process.  We take that duty very seriously.  We must protect our clients, the Sellers.

We just ask that we and our clients, the Sellers, receive a real offer, with money on the table as a deposit to make it real and legal, before buyers ask us to start the sometimes long and laborious process of due diligence.

The following article is copied directly from the BizQuest newsletter, edited by Richard Parker (not a relative) and covers a very important topic. The original article can be viewed on www.BizQuest.com, a very valuable source of information about buying and selling businesses. Aside from the newsletter they are a major source of businesses for sale listings. See the link to their site on the left under “Business Resources”

Today’s Topic: Buying a Business with a Partner - A Marriage Made in Heaven (or Hell)

I receive a surprising number of emails from prospective business buyers who are thinking about going into a venture with a partner. Usually, it’s a family member, friend or business acquaintance. What I find astonishing is that most inquiries relate to whether or not there needs to be a formalized agreement between the parties. After all most note, the partners have known each other for many years, they get along great, and trust one another. That’s all wonderful but the answer is an overwhelming, unconditional and categorical “yes” – you absolutely must have a formalized agreement.

To give you a personal example, my brother and I owned a large company together. I would trust my brother with my life in addition to him being a tremendous business confidante. Our partnership was perfect but, if heaven forbid something happened to him or me, the last thing either of us wanted was to suddenly have the other’s spouse as our partner (even though we love our sisters-in-law). For this, and numerous other reasons, it just makes sense to have everytIt does not have to be a 50-page shareholder/partnership agreement but it must clearly spell out the necessary fundamentals. Everyone goes into a partnership all glassy-eyed and hopeful. Dreams are shared. You are convinced you’ll conquer the world together. Unfortunately, situations change. Like my first boss and late uncle once told me: “you never know a woman until you marry her, and you never know a man until you work with him”.

While you will want to have an attorney compile any agreement, a few of the issues to consider include:

• Definition of ownership
• Dealing with disputes
• Mechanisms to dissolve the partnership
• Procedures to follow and a pre-determined formula to value the business in the event of a buyout by one party
• Voting rights should one partner own the majority of shares (some issues such as dilution, binding the company, selling additional shares may need unanimous consent)
• Procedure to follow in the event one partner dies, becomes incapacitated and unable to contribute to the business for an extensive period of time

Above all, the agreement must be fair to both parties.

I have had many partners in the numerous companies I have owned over the years. Most were great, and only a few were disastrous. Personally, I am a huge believer in having a partner. If the combination is right you can really divide and conquer!

If you are going to buy a business with a partner here are a few things to consider:

• Partnerships work best when each party brings a distinct set of skills to the equation. In other words, you should each have your own area of expertise and not simply a duplication of skills.
• Just because you get along with the other party is not enough reason to go into business together.
• You need to formulate a list of fundamentals in advance that you both agree any business you consider purchasing must have in place. If not, each partner will find a reason not to buy every business you review.
• Understand that your personal relationship with the partner will never be the same once you’re in business together. It may get better. It may get worse. Just remember what my uncle said. In my opinion, it is never worth it to jeopardize a friendship over a business but that’s not always possible. Be mindful of it and try as best as you can to keep business and personal issues separate.
• You need to share the philosophy that the business comes first before individual personal gain. If you do right by the business, the personal rewards will always follow.

Business partnerships are a lot more difficult than marriage because there’s money at stake from day one and it can really influence people. Just like a marriage, a business partnership takes work; you must have full faith in the other party, and initiatives you undertake should be for mutual benefit. Most importantly like a marriage, if there are “issues”, you need to communicate no matter how difficult it may be. You cannot sweep problems under the rug hoping they’ll go away. Just like in a marriage, problems left unresolved or ones that are too big, will cause the business to breakdown and will likely not be salvageable.