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Validating the numbers: lords approval). If the current owner doesn’t have an assumable
Being able to verify the financial performance of an lease, or the buyer is not acceptable to the landlord, then the
existing business, before you make an offer, is crucial! While current owner may ultimately remain on the hook for lease pay-
the owner’s books for the business might provide you with the ments if their buyer fails to make payments in a timely fashion.
information you are seeking, you’ll have to determine if you can If the current lease period is almost over (1 year left or
trust their numbers. It’s not uncommon for a seller to reveal that less), and an option to renew for an additional period is avail-
they have sheltered some income; did not report all of it to the able, then the new buyer of the business should negotiate the
government so they could pay less in taxes. The problem is, how terms of that extension directly with the landlord. The selling
do you verify how much additional income they actually made? owner should never bare responsibility for any future options.
After all, by telling you that they didn’t reported their income
in full, they’re basically admitting they don’t have any problem Selling your business:
with lying about it. So, are you just supposed to trust what they If you are looking to sell your business, then there are
say? Another problem with believing the owner’s books is that some important things to realize. First, understand that your
they may have changed some numbers, or created an entire business will always be worth more to a potential buyer if it
second set of books, to make the business look more profitable is still operating. The fact that it is generating sales, and has a
than it actually is. staff in place that can maintain those sales, can be invaluable to
For these reasons, the only documentation of income a buyer. This will give the buyer time to develop a management
you should trust is the owner’s personal Income-Tax Return. routine, evaluate what they want to do with the business, and
Think about it, have you ever seen anyone declare more income make desired changes. However, if the business has shut, you
on their tax return than what they actually made, and then pay may realistically only get a “fire-sale” value for your assets. Also,
taxes on it? If they are unwilling to show you their personal in- shuttering your business won’t relieve you from your obligation
come tax return, then “buyer-beware!” They either made their of paying the monthly rent.
money by shorting what they declared in sales and not paying Second, if you are selling your business, it must look its
taxes on it, or they reported all of it, paid their taxes, and can best and be running like a well-oiled machine! Just like a home
now substantiate a greater sales price for their business; it’s one or car that’s for sale, spiffing-up your asset will generate more
or the other… they can’t have it both ways! interest, increase the chances for a sale, and justify a higher
price!
Debts and encumbrances: Third, get “real” about the value of your business. We
Anyone buying an existing business will want to make already talked about how to go about valuing a business, but un-
sure that they will not be responsible for any past debts or en- derstandably most sellers will think that their business is worth
cumbrances created by the previous owner. more. Be careful here; I’ve seen sellers turn down reasonable
A title search should be conducted to make sure there aren’t offers for their business, only to wish later that they had taken
any liens or legal actions filed against the business. The existing one of those offers when they had the chance. Remember, a bird
owner of the business should be required to pay off any debts in the hand is worth more than two in the bush!
owed to vendors, contractors, the government, their landlord or Finally, a potential buyer that doesn’t have the ability
employees. If it will require the proceeds from the sale to settle to cash you out isn’t a qualified buyer! You do not want to take
these debts, then your attorney should get involved to craft an payments from your buyer. You do not want to play the role of
agreement to set aside the necessary funds for payment. the “Bank.” Experience tells us that most buyers who are mak-
ing payments will end up defaulting before they can pay for
Determine their reasons for selling: the business in full. When this happens, you end up with your
An important factor to consider when buying a busi- unwanted business again, probably run into the ground, and you
ness, is why does the current owner wants to sell it? If they want may not even have the ability to sell it, or even operate it again,
to sell their business because they’re out of cash, or because the if it’s tied up by legal constraints.
business required greater effort to run than they ever imagined, So, if you are looking to buy or sell a business, proceed
then the business may be worth considering. However, if the carefully, conduct thorough research, don’t become over-
business has been unsuccessful because of a poor location, or whelmed by your emotions, and make good business decisions.
because it’s hidden away, or difficult to get to, then these may
be problems you can’t fix.
You can improve a store’s ambiance, product quality,
and customer service, but you can’t move it to a more vibrant,
visible, and easier to access location. Don’t buy a business with
problems that can’t be easily or affordably fixed!

Access to a reasonable lease:
Anyone who might be considering buying an existing
business will want to make sure that they will have access to Ed Arvidson has been a leading consultant to the Specialty
a reasonable, long-term lease. Hopefully the current owner’s Coffee Industry for over 20 years. His company, E&C Con-
lease will be “assumable” by the buyer, (usually, with the land- sulting, can be found at www.coffeebizconsultant.com
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