How this couple end up in a $850,000 blunder and how we rescued them.

In a usual everyday case scenario, we are approached by buyers seeking help to source, negotiate and acquire for property or businesses for them but this couple approached us to have a professional advice on a business that they had already signed a contract to purchase for $850K and paid an 85K deposit as well.

On a quick initial analysis of the deal they had just signed, we were not only astonished with the misrepresentation of information but were also greatly disappointed to notice the misconduct of those trying to sell this business to the buyers.

Pausing here on this case story, we would bring your attention to the fact that “it is only a Buyer’s Agent who work in he best interest of a buyer to ensure they are protected and that they achieve the best possible outcome”. 

With a clear need to dig a bit deeper, we went on to further investigate the provided records and financials of the business and this is what the findings were – 

  • The business was only 2 years young.
  • Even if the claimed weekly sales figures are to be believed than also it was overpriced by at least $550,000
  • The recorded gross profit margins of 40% were grossly incorrect for this particular type of business and should have been around 20-22%.
  • There was no way a bank would lend any money to fund the purchase of this business as it was not only overpriced but also had incorrect and unacceptable financial records.
  • The sales reports were missing crucial data on the types of products sold and this makes it impossible to cross-check the margins in the recorded sales. This is unusual as the POS and sales systems mandatory in such businesses are capable of recording the relevant data.

It was easy for us to pin point exactly what was wrong here but what’s worrisome is that this is a story with several buyers out there who are inexperienced and don’t know what to look for in order to protect themselves and their hard earned life savings.

Anyway, moving further, the buyers had already signed the contract and had paid the deposit without safeguarding themselves and were now legally bound to complete the purchase or face a legal battle for claims of damages. We immediately engaged a skilled solicitor to review the contract and help our clients to release from the obligation. In our normal practice, we would have done this before signing a contract, and this is also a duty of selling agents to advice the buyers to do so. Due diligence is the most crucial part of a business purchase and a condition reflecting a satisfactory due diligence MUST always be part of a contract of sale. 

After many time consuming and tiring exchange of legal arguments between the solicitors and accountants of both the parties, on realising that we have grounds to counter-sue for misleading conduct, our clients were released from the contract.

The after-story with an ideal outcome –

After the rescue operation mentioned above, we then proceeded on to source, negotiate and acquire a suitable business for the clients as their Buyer’s Agent. Within 3 months of hard work, endless efforts and investigations in to a number of businesses, we were finally able to secure a strong, highly profitable and secure business at an appropriate purchase price. 

The take away for everyone from this story is that never think twice or hesitate to get a professional help, no matter how much you know or how confident you may feel because it is the unknown that we need to be aware of.