I work a lot with people buying businesses. Often it’s the buyer’s first time in the business world. Talk is cheap. They are looking for guidance and they form an immediate bond with the business broker and begin to trust what they say.

This is understandable because the broker seems to make sense and builds a compelling story about why they should buy the business. The purchaser isn’t in a position to disagree or challenge any of the assertions by the broker and they have no reason not to trust them…or so they think.

For some reason, inexperienced purchasers don’t fully understand that business brokers work 100% in the interests of the seller and it’s their job to sell the business by any means necessary. Brokers have huge disclaimers advising purchasers to do their own due diligence, and some use that to make up all kinds of rubbish to get a sale across the line.

A good example of this recently was a business I was paid to prepare an independent business valuation on behalf of a potential purchaser. The broker had provided some adjusted profit and loss reports to the purchaser. The broker was so nice that he had already done the hard work and taken all of the irrelevant things out of the expenses to show the real profit. I don’t have a problem with a broker suggesting adjustments, it’s actually the sign of a competent broker. But the problems started when I asked for the original profit and loss statements.

No matter how many times we asked we were told that they weren’t needed and that we would never get to see them. How on earth can we check the broker’s adjustments without seeing the original figures? If the adjustments were reasonable I might actually agree with them, so the broker has nothing to worry about.

So obviously I told my client that this is one to walk away from. There was then an awkward period of silence when my client was trying to work out who to trust, their own independent advisor or the broker who works for the seller. They made the right decision in the end, but it should have been an instant one.

The Lesson: Buying a business is a huge financial decision and life-changing event. You need to stop and take the emotion out of the decision process and look at the facts. Assertions by brokers are not facts until they are tested and verified. You need to make sure you trust the right people who have your best interests in mind, without any other motives.

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