Business for sale: How to avoid fake sellers

Finding the perfect business for sale that aligns with your strategic goals is easier said than done. Amidst your search, you may come across fake sellers who pose a significant challenge to buyers seeking to make a successful acquisition. Here’s what you need to know to avoid falling into their traps.

What is a fake seller?

My definition of a fake seller has evolved over time. Initially, it referred to individuals who solicited buyers without any intention of actually selling. However, it now includes one or more shareholders engaging in discussions about selling their business, without genuine readiness to do so.

What are the motives of the fake seller?

Fake sellers have various motives behind their deceptive actions:

• Testing the market: They use potential buyers to assess the value of their business without incurring substantial costs.

• Learning about acquisitions: Fake sellers engage in discussions to gain insights into business acquisitions, including approaches, methods, and major steps involved.

• Seeking inflated value: They aim to secure a transaction at a value beyond the fair market price, hoping to capitalize on an uninformed buyer’s consent.

Why buyers should avoid fake sellers

1. Waste of time: No matter their motivations, fake sellers are notorious for wasting your valuable time without any genuine intent to sell.

2. Financial loss: Buyers often incur expenses during the acquisition process before sellers do. As time passes without progress, costs continue to rise, leading to financial losses.

3. Exposure of strategic information: Interactions between buyers and sellers typically involve the exchange of sensitive business information. Fake sellers may exploit this knowledge to improve their company’s position at the expense of the buyer.

4. Distraction from business operations: Fake sellers frequently divert management’s attention away from day-to-day operations, causing a loss of focus on other opportunities and impeding business development. Acquisitions demand time, energy, and resources, which could be better allocated elsewhere.

Identifying genuine sellers

While these signs do not guarantee a successful transaction, they indicate the seriousness of a seller:

• Existence of business transfer tax planning.

• Willingness to negotiate price and sale conditions.

• Clear and credible reasons for selling.

• Willingness to invest necessary time without rushing.

• Prompt and accurate responses to information requests without compromising confidentiality.

• Involvement of advisors in the process, incurring cost.

• Genuine concern about what will happen after the transaction.

When discussing with a potential seller, remember that they can change their mind during the process, especially if they have strong emotional ties to their company. This does not necessarily make them fake sellers. For buyers, an efficient, well-structured, and short streamlined process can maximize efforts and increase the likelihood of success in their acquisition endeavours.

Safeguard your business interests by staying vigilant, identifying genuine sellers, and pursuing a transparent and expedient acquisition process.

For any questions related to acquisitions, get in touch with us at Galion Conseil.