Honesty Important for All Sides of Deals

As a business broker, when looking at the issues that affect the industry of helping people buy and sell businesses, there are many forces at work.

Like many of earth’s natural forces, they often work in direct opposition to one another. For example, business owners who are selling their business want to maximize their return. But business buyers are looking for ways to leverage their investments.

Banking institutions are in competition with one another to finance as many solid transactions as they possibly can. And business brokers want to secure as many clients as possible.

The challenge that all of these parties face, is the urge to “puff the good” in order to get what they want.

Although the urges all are different, what remains constant is the need for candor.

Call it what you want- honesty, integrity, credibility or veracity- what people need to be focused on is the truth.

This is not a situation limited to northern Nevada. Across the country, newspaper headlines have been filled with horror stories regarding inaccuracies at WorldCom, Enron, Global Crossing and even Krispy Kreme.

As sad as many of these stories are, the good news is that they have caused people to become much more diligent in their investment decisions.

Fortunately, there are many more good people and good companies out there than not. Unfortunately, the actions of the minority can taint the whole landscape.

As a result, the business owner must resist the urge to overstate earnings, potential or competitive edge.

They need to be able to produce accurate financial statements that reflect the business’ true cash flow.

As an example, since many owners claim a variety of non-operational expenses, they need to make sure that they have supporting documentation.

The business buyer must resist the urge to overstate their abilities, both from a financial and skill set perspective. They need to be honest about how much cash they have as a down payment, how much they are prepared to invest and how much they expect to make.

Bankers must resist the urge to tell their potential client that securing the necessary funding will not be a problem. It has been alarming to see how many times a buyer was told this only to never see the funds materialize.

And finally, brokers must resist the urge to tell their clients what they want to hear. If the broker says he can get the seller’s asking price, or more be wary. Since owners sometimes overvalue their business, sellers should be cautious if the broker says he can meet or beat their expectations. A good business broker will be the one who is not afraid to encourage outside participation by the buyer and seller’s attorney and accountant to make sure that the transaction is based on a practical application of legal tax issues. By doing this, the broker will help keep the transaction an honest one.

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