The Business for Sale
The seller had a home based maintenance. It was a business he had started from scratch and developed over a 12 year period. The seller had never owned a business before and had learned a lot by owning a business. Like many owners, he had personal expenses in his bookkeeping, like dinners with his family and other small purchases. Before listing his business, he removed his personal expenses from him bookkeeping.
Another business broker brought a well qualified buyer that was looking to leave the corporate world. He loved the idea of buying a business where he could work from home.
After meeting the seller and understanding the business. the buyer was very interested and quickly put in a reasonable offer that was accepted by the seller.
The buyer requested the standard items: Tax returns, P&L statements, bank statements, W2’s, Contracts and other relevant information. As the buyer reviewed all the information, he began to see some issues. Because the seller had personal expenses coming out of his business bank account, the business was struggling with cash flow. The buyer questioned whether business made any money at all. He saw HUGE red flags on this business.
After 4 weeks of due diligence, the buyer reduced his offer by $125k based on his findings. The seller declined the offer and did not sell the business.
As a business owner, you can “clean up” your P&L, but you can not clean up your bank statement. It is best to keep personal expenses out of your business to get the highest price possible for your business.