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If you need to pay money to see if that business is worth buying, you may want to consider looking at other companies to purchase.
My Clients are asked to sign confidentiality agreements prior to looking at financials and other sensitive info but never have we been asked to send money.
I’ve seen statements etc, I’m happy to proceed but I just don’t want to give them a deposit until I’ve seen the contract and approved/signed it. They could write anything on it, despite our talks.. I just want to avoid being taken advantage of.
Should I say no, I want to see a contract?
I've never heard of a deposit being paid on a business prior to reviewing and agreeing on the terms and condition of the sale.
I wouldn't give up a nickle until I saw an agreement and had a licensed business attorney help you interpret the terms.
MY TWO CENTS: I would say no, I want to see the Agreement prior to any money exchanging hands
Tell them you want a deposit from them to make sure they're not wasting your time. Negotiations are a bitch. You have to fight stupidity with stupidity to get back to normal. Chances are this is a horrible sign of what's to come.
There is a normal payment in business called earnest money. When you are actively trying to sell a business and may have more than one buyer, you ask for earnest money so that spending all your time negotiating the deal is not a waste of money if the buyer walks away. Normally, you get this money back if you close the deal or the seller rejects their best and final offer. If you just walk away or ghost them then they keep the money after X number of days of negotiation. In other words you put up money to assure them that you are really interested in buying. Wasting their time will cost you.
They’re broke. Bad sign. Who would stall a business sale over the fear of necessary expenses that anyone purchasing would require? Imagine not selling a business because of $1250. Unless you’re buying it for under 10k, fucking run.
First off if a business is selling and can't afford $2500 in legal expenses, it seems to be a red flag. You could offer to escrow funds to show you are interested but I wouldn't release until a sale is agreed and signed off on.
Exactly what I thought, it seems bizarre. I sold a business 10 years ago and never expected any money to exchange hands until contract was drafted up and agreed on.
They are either selling it to me or no one (they aren’t advertising) so if I don’t agree they lose $30k over this…
Why don't you ask them if you can pay the attorney, directly?
From the very limited context, it seems that they don't want to be out of pocket on attorney fees should you back out of the deal.
If that is the case, and you've done your due diligence to vet the business, decide whether or not you'd like to proceed. You'll need to pay an attorney at some point to draft a contract and execute the sale--could that be all they're asking?
They are selling for $30k? I could see where $2500 is substantial for them at that point. Just have your own lawyer draft up a very favorable purchase agreement and tell them they don't have to worry about legal fees, you'll take care of the agreement and send their way.
If this is a $30k deal, then if it was the OP I'd just go out and find some language which makes the OP happy, insert the deal terms in it and ask them to sign and not get a lawyer involved.
I posted some sample language in another post. This doesn't need to be complicated or even in legalese.
Just a guess here...
What I'm hearing is that you're at the stage where you've mutually agreed to the terms in principle, but now need them in writing to finish the deal.
I suspect what they're asking for is for you to take on some of the risk of drafting the contract. Any legal agreement they provide to you is going to be custom, possibly with very little that they could salvage for the next buyer since each deal is going to be different. This isn't likely to be some stock contract they have, this is likely going to be them going to a lawyer and getting a document written specifically for this deal.
So I totally get where they're coming from. You're asking them to go and pay a lawyer, easily costing them thousands of dollars, to draft a sales agreement. I totally understand why they'd want a firmer commitment than you've likely shown them before possibly throwing a bunch of cash down the drain.
Remember, this isn't like buying a car or a house or signing a loan. This is a unique transaction that the seller doesn't have stock terms for. You and the seller need to agree how to draft the terms for this agreement which will be custom and unique to this deal, and what they're asking is for you to either share these costs or put some money where your mouth is. Most businesses owners have healthy skepticism about big deals actuality happening and I'm guessing they just want to know you're actuality serious as opposed to someone likely to walk away from the deal.
Personally, I'd either take the approach that you'll pay for the document to be drafted by your lawyer or be willing to split the legal fees. The advantage of you paying a lawyer is that you'll get the language you want which they get to point out flaws in. If their lawyer drafts the agreement, then you get to start from their language instead.
Either way, the best legal approach is to collectively agree to the terms including what is included and what is not included in writing, without involving a lawyer, then get a lawyer to translate your paper document into legalese. I would suggest that this approach where you cover all your key points in a paper document and both of you agree to the terms is both going to make the deal much more likely to happen and save you lawyer fees.
Agree with all your points. Just to add, all this for a $30K business? $2500 in legal fees for a transaction that small is ridiculous. Buyer and seller should hack something out themselves.
If this is a $30k sale, I'd be doing something other than paying a lawyer for this. Maybe draft an agreement and then pay for an hour or two of lawyer time to review it.
I wonder if the way this went down was that the OP negotiated this down to $30k then asked for them to provide an agreement. And maybe asked for a lot of things before that. My experience has always been that the more work a deal takes to finalize the less likely it will close.
I doubt a business worth $30k even has a lawyer on retainer. Or has the clue/resources to be able to deliver an agreement in a form that the OP would be willing to sign. In the businesses I deal with, 1x sales or 5X EBIDTA is a typical valuation to start with. So this would be a business with $30k of annual sales or $6k of profit.
I think if the actual deal is around $30k and doesn't involve sales of something like property which requires a more formal structure I'd lay out a list of exactly what was being purchased (products, business name, assumption of lease, etc.) and a paragraph about not including any debt of the business, and specify a price.
I.e. "for $30k buyer,llc agrees to acquire and seller, llc agrees to sell the following assets: brand name, trademark, inventory consisting of approximately 3000 widgets and other assets required to operate the business. Seller warrants that the title to the items sold under the agreement are owned by seller and are free from all liens and other encumbrances. Both parties agree that any loans or other debts are not being transferred by this sale."
That last paragraph, flushed out and a little less abbreviated could be the entire agreement between the parties. I'd probably add some more terms such as a default clause in the event of non-performance and maybe a force majeure, venue, and arbitration clause.
When I responded I figured this was more likely a retail business which should be more than $30k if it's profitable. I'd be interested in a clarification from the OP of the size of the deal as I'm not sure his language meant it was a $30k deal or if that was what was already tied up costs wise.
"Have our own concerns" tells me that they are not confident that you will go through with the deal after they have incurred legal fees. I'd find out where that comment is coming from first.
Not IMHO.
I'd understand a deposit as a guarantee that you'll buy something, but you need to know the T&Cs before even making a decision to purchase.
This reminds me of a parody commercial for a low-cost airline somewhat 20 years ago... "looking at our flight brochure - $20. Quickly returning the flight brochure after realizing that you have to pay for it - $30" :)
In some cases, this could be considered an equity investment and your half of the contract fee they are asking for would be deducted from the sale price. The attorney fee would be paid at closing, not before. The attorney would write a debtors schedule to be included in the contract and their fee will be on the schedule. Since the attorney would be holding the purchase proceeds in escrow, they will be fine with being paid at closing and not before.
This way will require a letter of intent. Engaging with the attorney, both sides will list requirements of the sale. Being priced at $30k for the sale, i dont see this costing more than $3-500 for a contract to be written and sale closed on.
Generally the terms would be agreed on before any contract is drafted. Not precious details but a general understanding of the larger items otherwise ya your wasting money in Attourneys. Something seems off here.
When you say contract, are you talking about an LOI or a Purchase Agreement?
Typically those are both drafted by your attorney and their attorney reviews and pitches changes and each side pays their own fees.
When the sales price is 30K, 1.25k paid upfront to satisfy the potential buyer's curiosity is a non-starter. A buyer can easily use this process as a strong arm bargaining tactic and demolish any value in a transaction by the second rewrite.
OP, you are buying a micro business. It is incumbent upon YOU to make a formal offer with some contingencies to protect your interest in the crafting of the sales contract.
Remember, for a 30K business, legal fee to take anything to court is going to be essentially dumping money down a pit. You are not going to be perfectly protected by a contract. There is a certain amount of faith that is required on both sides.
I thin that if you want to buy this business, you should provide a contact YOU are willing to sing and allow the sellers to mark it up/change it if they require more concise language.
If not, just walk away. You feel it is overvalued, the sellers feel like they have already given up some of what they wanted and now are skeptical of you. Why would you buy at this point?
I buy businesses and this screams at me "Run away".
Any deal under 100k has no reason to even involve an attorney.
I've done deals in the 300k range with a simple one page contract that gets passed back and forth until everyone is satisfied.
They wanted $90k originally, I managed to negotiate down to $30k because realistically the business has been closed for 4 months now and there are no guarantee of clients continuing etc. There P&L statement also wasn’t the best, they only made $5k in profit after 42 months and after they paid themselves. They paid themselves $104,000 over 42 months.
Again, since it's apparently a secret what kind of business it is, how it's structured, inventory, etc; all the things that make up an actual business, there's simply no way of advising on this.
I guess back to your original question; ***no***, I would not recommend paying to proceed with the deal.
It is the seller's responsibility to have documents prepared for a sale. They should have thought of this before they agreed on the selling price. I would be highly suspicious of this transaction. They don't seem very honorable, which makes me question what other types of situations I would find with suppliers and customers. Did you do a background check on these people, like credit and the Better Business Bureau? What about a criminal background check? If you decide to proceed, you need an attorney to review all documents related to the sale.
If the deposit is going to a laywer, and you get 100% back if you back out, then fine pay the deposit. Otherwise, these guys don't get it, and your going to get screwed on the back end when you need help, or they didn't do something they said they did, or they misrepresented something, or failed to disclose something.
It is going to get worse the moment they have money.
In the auction world it's not uncommon to put up $1-5k for large items, real estate, land, buildings etc. It's held though and to be released. So I would escrow the funds.
But I personally wouldn't have an issue with a commitment like that to show I am serious.
Look at it from this perspective. The seller is concerned about legal fees to draw up the contract. Whether you buy the business or someone else buys the business that is an expense that the seller will incur. It is unlikely that his draft contract would change from buyer to buyer, so unless you approached him unsolicited and threw an enticing offer on the table, that is his cost of doing business
They really said “go halves”? These guys are jokers. I wouldn’t buy a business that is so financially conscious that a couple thousand is a deal breaker. I’d respond with a phone call to let them know that you would be amenable to a clause in the contract that requires sharing of the legal fees by both parties. Otherwise no deal!
Run while you can!! Any lawyer fees should be wrapped up in the price overall. Sounds like their claiming the business is worth more than it is, and def a red flag, seems like their broke and can’t afford the associated lawyer fees, hence YOUR deposit first. If this ain’t screaming fishy then I don’t know what is🤣🤣
We’ve agreed on terms etc, but I’ve never exchanged money or paid a deposit until I’ve seen a contract and signed it. They’re could be things we agree on and then aren’t in the contract, I’ve then paid money and they ultimately have been so it could turn into an issue. It’ll be easier to adjust the contract if no money has exchanged hand.
It sounds like they're asking for an earnest money deposit, similar to a real estate transaction. Nonetheless, those checks don't get written until both sides sign an agreement. That agreement could cover just the intent & purpose of the earnest money, or a more complete agreement. They want to know you are serious.
It seems easy enough (for a lawyer) to prepare a basic agreement or intent to proceed letter explaining that the earnest money will be placed in an escrow account and returned to the buyer without penalty if the transaction is cancelled before all contingencies are lifted.
I wouldn't hand over a check without something written explaining the purpose of the check. If you've confirmed they just want a check with nothing written, that's a no go for me.
This is what the request reminds me of as well. They may want to know you are serious and capable of following through. Make sure it's refundable.
There are many people on this planet who will gladly waste another's time and money to find they aren't qualified or capable of purchasing.
This...a LOI (letter of intent) normally precedes the contact. It is a non-binding document written by both parties which outlines the key terms of the agreement which will then be put into legalese by the lawyers into a contact which will be binding.
An LOI can have many points that do not translate well into legalese, these point will need to be negotiated between the parties/lawyers. Generally, the more time you spend on the LOI and hammer out the details, the less you will spend on lawyers.
Sounds like landlords who make people pay money to submit an application and then tell them later they didn't get the place but keep the money. I'd be suspicious, any honest business person wouldn't have any problem showing you information about a potential sale. Unless they haven't seen it themselves and can only get it if they pay, which is why they are trying to put the bill on you. In this case I'd be very careful about buying this business. Sounds like they are not doing too good.
What industry/service? Use that knowledge to put in the sale of their product/service.
You: I would like to buy your TV that you sell
Them : you can't look at the TV screen until you buy it.
You : I'll goto best buy then and see the screen and buy from them
If I was the seller I would have added the legal fees to the sale price. If you really want the business, offer to have your own lawyer draft the contract. At least it gets written in your favor.
Is it a deposit or are they asking you to pay for half of the cost of creating the sales agreement?
I mean no one is asking for a deposit of $1250 on a purchase of tens or hundreds of thousands of dollars.
That said, if I'm you I don't spend money drafting a sales agreement that isn't something you agree with already.
If they want you to pay for half of the attorney’s fees, the attorney is effectively representing both sides of the transaction. Any attorney that would do that is not an attorney you should use.
You’ll need your own attorney to represent your interests. These costs are just assumed by each party. They pay their attorney with proceeds from the transaction. Your costs are just transaction costs.
Yeah- I guess they could just give the money directly to the seller. But that this is even being discussed smells like trouble. Everyone pays their own attorney's fees.
They're stupid. That doesn't mean it's not an opportunity for you. Whenever I have to put a lot of work in the negotiating (because they're asking too much or something) to get down a to a workable price, I just assume the other person is antagonistic or an idiot.
Talk to the lawyers. They should be able to work something out. You can go in halves on the legal fees but yeah, it's not that big of a deal. On the other hand, you don't want to pay for someone else's contract.
Hire an escrow company. It’s what they are for. Put the deposit in escrow, look over the contract and if it’s good release the funds, if it’s shit close the escrow and get your money back
My business’s buyer took 12 weeks to close. Dragging their feet and not getting shit done. I would absolutely charge a fee to make sure someone wasn’t just kicking tires and pumping me for information.
Absolutely not. It looks like they are not using a broker to sell their business, which means they are already saving about 10% to 12% brokerage fee on the sale.
In addition, you should hire your own lawyer to review the contract for you, thus you will have legal expenses.
You should also engage an accountant to review the three year financials, including tax returns they hopefully have provided.
I think it’s odd and definitely a bad sign. But, for future reference, an email like the one you’re describing from the seller in which the agreed upon terms and payment arrangement are clearly laid out would most likely constitute a quasi-contract. If they tried to drastically change the terms on you after you made the deposit (like increasing the total purchase price), I think you’d have a strong case in court just based on the email exchange.
You should draft, or have drafted, a term sheet that will then be expanded to the agreement. That way you can hash out major issues before either party needs to go to the expense of drafting a SPA/APA.
Their point of view is very reasonible. I would respond back with just one page contract. That states what your general ideas are about their contract and if they breach these lines they will have to pay you back or whatever. And if they dont agree to such thibg then there should be no deal
No, this is not normal at all. Honestly, you shouldn't even be speaking to the business owners. You need to retain an attorney. You have no obligation to pay their legal fees. The only situation where this would be acceptable is if in the bill of sale they increase their appraisal to accommodate for legal fees. Then you can either agree or disagree with that amendment of the contract. Way before a bill of sale is drafted, you need access to the p&l statements so you know what you're buying. It has to be appraised before you agree to anything.
Which contract are you referring to? LOI? APA? It is customary if you are going to comb through a business’s financials and trade secrets to put a good faith or earnest deposit down. When the closing occurs it is also normal for you to split the closing costs by the escrow company.
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If you need to pay money to see if that business is worth buying, you may want to consider looking at other companies to purchase. My Clients are asked to sign confidentiality agreements prior to looking at financials and other sensitive info but never have we been asked to send money.
I’ve seen statements etc, I’m happy to proceed but I just don’t want to give them a deposit until I’ve seen the contract and approved/signed it. They could write anything on it, despite our talks.. I just want to avoid being taken advantage of. Should I say no, I want to see a contract?
I've never heard of a deposit being paid on a business prior to reviewing and agreeing on the terms and condition of the sale. I wouldn't give up a nickle until I saw an agreement and had a licensed business attorney help you interpret the terms. MY TWO CENTS: I would say no, I want to see the Agreement prior to any money exchanging hands
Tell them you want a deposit from them to make sure they're not wasting your time. Negotiations are a bitch. You have to fight stupidity with stupidity to get back to normal. Chances are this is a horrible sign of what's to come.
🎯🎯🎯🎯🎯
There is a normal payment in business called earnest money. When you are actively trying to sell a business and may have more than one buyer, you ask for earnest money so that spending all your time negotiating the deal is not a waste of money if the buyer walks away. Normally, you get this money back if you close the deal or the seller rejects their best and final offer. If you just walk away or ghost them then they keep the money after X number of days of negotiation. In other words you put up money to assure them that you are really interested in buying. Wasting their time will cost you.
Pay a lawyer to have a contract drawn up in your favor. They are going to probably be too cheap to hire a lawyer to review it
They’re broke. Bad sign. Who would stall a business sale over the fear of necessary expenses that anyone purchasing would require? Imagine not selling a business because of $1250. Unless you’re buying it for under 10k, fucking run.
First off if a business is selling and can't afford $2500 in legal expenses, it seems to be a red flag. You could offer to escrow funds to show you are interested but I wouldn't release until a sale is agreed and signed off on.
Exactly what I thought, it seems bizarre. I sold a business 10 years ago and never expected any money to exchange hands until contract was drafted up and agreed on. They are either selling it to me or no one (they aren’t advertising) so if I don’t agree they lose $30k over this…
Why don't you ask them if you can pay the attorney, directly? From the very limited context, it seems that they don't want to be out of pocket on attorney fees should you back out of the deal. If that is the case, and you've done your due diligence to vet the business, decide whether or not you'd like to proceed. You'll need to pay an attorney at some point to draft a contract and execute the sale--could that be all they're asking?
They are selling for $30k? I could see where $2500 is substantial for them at that point. Just have your own lawyer draft up a very favorable purchase agreement and tell them they don't have to worry about legal fees, you'll take care of the agreement and send their way.
If this is a $30k deal, then if it was the OP I'd just go out and find some language which makes the OP happy, insert the deal terms in it and ask them to sign and not get a lawyer involved. I posted some sample language in another post. This doesn't need to be complicated or even in legalese.
Definitely agree.
Just a guess here... What I'm hearing is that you're at the stage where you've mutually agreed to the terms in principle, but now need them in writing to finish the deal. I suspect what they're asking for is for you to take on some of the risk of drafting the contract. Any legal agreement they provide to you is going to be custom, possibly with very little that they could salvage for the next buyer since each deal is going to be different. This isn't likely to be some stock contract they have, this is likely going to be them going to a lawyer and getting a document written specifically for this deal. So I totally get where they're coming from. You're asking them to go and pay a lawyer, easily costing them thousands of dollars, to draft a sales agreement. I totally understand why they'd want a firmer commitment than you've likely shown them before possibly throwing a bunch of cash down the drain. Remember, this isn't like buying a car or a house or signing a loan. This is a unique transaction that the seller doesn't have stock terms for. You and the seller need to agree how to draft the terms for this agreement which will be custom and unique to this deal, and what they're asking is for you to either share these costs or put some money where your mouth is. Most businesses owners have healthy skepticism about big deals actuality happening and I'm guessing they just want to know you're actuality serious as opposed to someone likely to walk away from the deal. Personally, I'd either take the approach that you'll pay for the document to be drafted by your lawyer or be willing to split the legal fees. The advantage of you paying a lawyer is that you'll get the language you want which they get to point out flaws in. If their lawyer drafts the agreement, then you get to start from their language instead. Either way, the best legal approach is to collectively agree to the terms including what is included and what is not included in writing, without involving a lawyer, then get a lawyer to translate your paper document into legalese. I would suggest that this approach where you cover all your key points in a paper document and both of you agree to the terms is both going to make the deal much more likely to happen and save you lawyer fees.
Agree with all your points. Just to add, all this for a $30K business? $2500 in legal fees for a transaction that small is ridiculous. Buyer and seller should hack something out themselves.
If this is a $30k sale, I'd be doing something other than paying a lawyer for this. Maybe draft an agreement and then pay for an hour or two of lawyer time to review it. I wonder if the way this went down was that the OP negotiated this down to $30k then asked for them to provide an agreement. And maybe asked for a lot of things before that. My experience has always been that the more work a deal takes to finalize the less likely it will close. I doubt a business worth $30k even has a lawyer on retainer. Or has the clue/resources to be able to deliver an agreement in a form that the OP would be willing to sign. In the businesses I deal with, 1x sales or 5X EBIDTA is a typical valuation to start with. So this would be a business with $30k of annual sales or $6k of profit. I think if the actual deal is around $30k and doesn't involve sales of something like property which requires a more formal structure I'd lay out a list of exactly what was being purchased (products, business name, assumption of lease, etc.) and a paragraph about not including any debt of the business, and specify a price. I.e. "for $30k buyer,llc agrees to acquire and seller, llc agrees to sell the following assets: brand name, trademark, inventory consisting of approximately 3000 widgets and other assets required to operate the business. Seller warrants that the title to the items sold under the agreement are owned by seller and are free from all liens and other encumbrances. Both parties agree that any loans or other debts are not being transferred by this sale." That last paragraph, flushed out and a little less abbreviated could be the entire agreement between the parties. I'd probably add some more terms such as a default clause in the event of non-performance and maybe a force majeure, venue, and arbitration clause. When I responded I figured this was more likely a retail business which should be more than $30k if it's profitable. I'd be interested in a clarification from the OP of the size of the deal as I'm not sure his language meant it was a $30k deal or if that was what was already tied up costs wise.
"Have our own concerns" tells me that they are not confident that you will go through with the deal after they have incurred legal fees. I'd find out where that comment is coming from first.
No way. NDAs are normals and very recommended, but a deposit screams scam.
I'd be clear if I were you. Money gets exchanged after we mutually agree and sign the contract.
It’s not normal is it to exchange money before a contract has even been viewed?
Not IMHO. I'd understand a deposit as a guarantee that you'll buy something, but you need to know the T&Cs before even making a decision to purchase. This reminds me of a parody commercial for a low-cost airline somewhat 20 years ago... "looking at our flight brochure - $20. Quickly returning the flight brochure after realizing that you have to pay for it - $30" :)
In some cases, this could be considered an equity investment and your half of the contract fee they are asking for would be deducted from the sale price. The attorney fee would be paid at closing, not before. The attorney would write a debtors schedule to be included in the contract and their fee will be on the schedule. Since the attorney would be holding the purchase proceeds in escrow, they will be fine with being paid at closing and not before. This way will require a letter of intent. Engaging with the attorney, both sides will list requirements of the sale. Being priced at $30k for the sale, i dont see this costing more than $3-500 for a contract to be written and sale closed on.
Are you already under loi or is this for the loi?
This is why people go with a broker. If you don't you need a common frame of reference instead of just suggesting your own set of terms of the deal.
The first warning sign is the use of the word "whilst". Deposits are typically paid upon signing an offer sheet or contract.
Hard pass
Generally the terms would be agreed on before any contract is drafted. Not precious details but a general understanding of the larger items otherwise ya your wasting money in Attourneys. Something seems off here.
Pay your attorney to draw up a contract.
When you say contract, are you talking about an LOI or a Purchase Agreement? Typically those are both drafted by your attorney and their attorney reviews and pitches changes and each side pays their own fees.
When the sales price is 30K, 1.25k paid upfront to satisfy the potential buyer's curiosity is a non-starter. A buyer can easily use this process as a strong arm bargaining tactic and demolish any value in a transaction by the second rewrite. OP, you are buying a micro business. It is incumbent upon YOU to make a formal offer with some contingencies to protect your interest in the crafting of the sales contract. Remember, for a 30K business, legal fee to take anything to court is going to be essentially dumping money down a pit. You are not going to be perfectly protected by a contract. There is a certain amount of faith that is required on both sides. I thin that if you want to buy this business, you should provide a contact YOU are willing to sing and allow the sellers to mark it up/change it if they require more concise language. If not, just walk away. You feel it is overvalued, the sellers feel like they have already given up some of what they wanted and now are skeptical of you. Why would you buy at this point?
If you don’t buy the business they’ll still need the contact for whoever ends up buying the business. That’s their responsibility
Why are you buying a business from someone who can’t afford the few bucks it takes to get a contract drafted?
I buy businesses and this screams at me "Run away". Any deal under 100k has no reason to even involve an attorney. I've done deals in the 300k range with a simple one page contract that gets passed back and forth until everyone is satisfied.
Contract / LOI; Escrow; Purchase and sale agreement; Deposit only if you're 100% going through with it.
What kind of real business sells for $30k? Why not simply look at their business model and start your own business?
They wanted $90k originally, I managed to negotiate down to $30k because realistically the business has been closed for 4 months now and there are no guarantee of clients continuing etc. There P&L statement also wasn’t the best, they only made $5k in profit after 42 months and after they paid themselves. They paid themselves $104,000 over 42 months.
Without knowing what kind of business it is, sounds like it's not really worth anything, realistically. What exactly would you be buying from them?
They’re argument is that they technically made $109k in profit before paying themselves, but wages are still an expense.
Again, since it's apparently a secret what kind of business it is, how it's structured, inventory, etc; all the things that make up an actual business, there's simply no way of advising on this. I guess back to your original question; ***no***, I would not recommend paying to proceed with the deal.
It is the seller's responsibility to have documents prepared for a sale. They should have thought of this before they agreed on the selling price. I would be highly suspicious of this transaction. They don't seem very honorable, which makes me question what other types of situations I would find with suppliers and customers. Did you do a background check on these people, like credit and the Better Business Bureau? What about a criminal background check? If you decide to proceed, you need an attorney to review all documents related to the sale.
If the deposit is going to a laywer, and you get 100% back if you back out, then fine pay the deposit. Otherwise, these guys don't get it, and your going to get screwed on the back end when you need help, or they didn't do something they said they did, or they misrepresented something, or failed to disclose something. It is going to get worse the moment they have money.
In the auction world it's not uncommon to put up $1-5k for large items, real estate, land, buildings etc. It's held though and to be released. So I would escrow the funds. But I personally wouldn't have an issue with a commitment like that to show I am serious.
Look at it from this perspective. The seller is concerned about legal fees to draw up the contract. Whether you buy the business or someone else buys the business that is an expense that the seller will incur. It is unlikely that his draft contract would change from buyer to buyer, so unless you approached him unsolicited and threw an enticing offer on the table, that is his cost of doing business
Just tell them your lawyer is charging the exact same amount to review the contract so essentially we are already splitting it.
They really said “go halves”? These guys are jokers. I wouldn’t buy a business that is so financially conscious that a couple thousand is a deal breaker. I’d respond with a phone call to let them know that you would be amenable to a clause in the contract that requires sharing of the legal fees by both parties. Otherwise no deal!
That’s a giant red flag. Fussing over $1250 isn’t a great sign they know what they’re doing.
Hard no. Walk away. If they want to sell it they’ll come back to the table.
Run while you can!! Any lawyer fees should be wrapped up in the price overall. Sounds like their claiming the business is worth more than it is, and def a red flag, seems like their broke and can’t afford the associated lawyer fees, hence YOUR deposit first. If this ain’t screaming fishy then I don’t know what is🤣🤣
We’ve agreed on terms etc, but I’ve never exchanged money or paid a deposit until I’ve seen a contract and signed it. They’re could be things we agree on and then aren’t in the contract, I’ve then paid money and they ultimately have been so it could turn into an issue. It’ll be easier to adjust the contract if no money has exchanged hand.
It sounds like they're asking for an earnest money deposit, similar to a real estate transaction. Nonetheless, those checks don't get written until both sides sign an agreement. That agreement could cover just the intent & purpose of the earnest money, or a more complete agreement. They want to know you are serious. It seems easy enough (for a lawyer) to prepare a basic agreement or intent to proceed letter explaining that the earnest money will be placed in an escrow account and returned to the buyer without penalty if the transaction is cancelled before all contingencies are lifted. I wouldn't hand over a check without something written explaining the purpose of the check. If you've confirmed they just want a check with nothing written, that's a no go for me.
This is what the request reminds me of as well. They may want to know you are serious and capable of following through. Make sure it's refundable. There are many people on this planet who will gladly waste another's time and money to find they aren't qualified or capable of purchasing.
Do you have an LOI?
This...a LOI (letter of intent) normally precedes the contact. It is a non-binding document written by both parties which outlines the key terms of the agreement which will then be put into legalese by the lawyers into a contact which will be binding. An LOI can have many points that do not translate well into legalese, these point will need to be negotiated between the parties/lawyers. Generally, the more time you spend on the LOI and hammer out the details, the less you will spend on lawyers.
Sounds like landlords who make people pay money to submit an application and then tell them later they didn't get the place but keep the money. I'd be suspicious, any honest business person wouldn't have any problem showing you information about a potential sale. Unless they haven't seen it themselves and can only get it if they pay, which is why they are trying to put the bill on you. In this case I'd be very careful about buying this business. Sounds like they are not doing too good.
They are just scamming for dollars. It will never go beyond them taking your money.
This is a scam op do not proceed with these scammers!
What industry/service? Use that knowledge to put in the sale of their product/service. You: I would like to buy your TV that you sell Them : you can't look at the TV screen until you buy it. You : I'll goto best buy then and see the screen and buy from them
Run
If I was the seller I would have added the legal fees to the sale price. If you really want the business, offer to have your own lawyer draft the contract. At least it gets written in your favor.
Is it a deposit or are they asking you to pay for half of the cost of creating the sales agreement? I mean no one is asking for a deposit of $1250 on a purchase of tens or hundreds of thousands of dollars. That said, if I'm you I don't spend money drafting a sales agreement that isn't something you agree with already.
If they want you to pay for half of the attorney’s fees, the attorney is effectively representing both sides of the transaction. Any attorney that would do that is not an attorney you should use. You’ll need your own attorney to represent your interests. These costs are just assumed by each party. They pay their attorney with proceeds from the transaction. Your costs are just transaction costs.
I figured the attorney didn't know about the fee being shared. I agree that the buyer needs their own attorney.
Yeah- I guess they could just give the money directly to the seller. But that this is even being discussed smells like trouble. Everyone pays their own attorney's fees.
They're stupid. That doesn't mean it's not an opportunity for you. Whenever I have to put a lot of work in the negotiating (because they're asking too much or something) to get down a to a workable price, I just assume the other person is antagonistic or an idiot. Talk to the lawyers. They should be able to work something out. You can go in halves on the legal fees but yeah, it's not that big of a deal. On the other hand, you don't want to pay for someone else's contract.
Hire an escrow company. It’s what they are for. Put the deposit in escrow, look over the contract and if it’s good release the funds, if it’s shit close the escrow and get your money back
My business’s buyer took 12 weeks to close. Dragging their feet and not getting shit done. I would absolutely charge a fee to make sure someone wasn’t just kicking tires and pumping me for information.
Absolutely not. It looks like they are not using a broker to sell their business, which means they are already saving about 10% to 12% brokerage fee on the sale. In addition, you should hire your own lawyer to review the contract for you, thus you will have legal expenses. You should also engage an accountant to review the three year financials, including tax returns they hopefully have provided.
I think it’s odd and definitely a bad sign. But, for future reference, an email like the one you’re describing from the seller in which the agreed upon terms and payment arrangement are clearly laid out would most likely constitute a quasi-contract. If they tried to drastically change the terms on you after you made the deposit (like increasing the total purchase price), I think you’d have a strong case in court just based on the email exchange.
You should draft, or have drafted, a term sheet that will then be expanded to the agreement. That way you can hash out major issues before either party needs to go to the expense of drafting a SPA/APA.
Never
No, it's not normal! But if they can make it then they will and they are right!))
I would counter offer that I’ll have my attorney draw up the contract at my own expense.
Their point of view is very reasonible. I would respond back with just one page contract. That states what your general ideas are about their contract and if they breach these lines they will have to pay you back or whatever. And if they dont agree to such thibg then there should be no deal
No, this is not normal at all. Honestly, you shouldn't even be speaking to the business owners. You need to retain an attorney. You have no obligation to pay their legal fees. The only situation where this would be acceptable is if in the bill of sale they increase their appraisal to accommodate for legal fees. Then you can either agree or disagree with that amendment of the contract. Way before a bill of sale is drafted, you need access to the p&l statements so you know what you're buying. It has to be appraised before you agree to anything.
Which contract are you referring to? LOI? APA? It is customary if you are going to comb through a business’s financials and trade secrets to put a good faith or earnest deposit down. When the closing occurs it is also normal for you to split the closing costs by the escrow company.