Had a SBA loan financing client recently buy a multi-million dollar business who failed to complete his due diligence by both not completing a Sellers Disclosure Statement Form, and by not getting full copies of all the financials, financials etc. during the due-diligence period.
This buyer wrapped up his deal and when he got into the business the first week found out that the previous owner (who is currently training the new buyer) had erased (supposedly by accident) most of the past QuickBooks files. Was this an act of negligence or some form of deception/fraud? The buyer at this point is not sure since he did not get a copy of the files during due-diligence. If the broker and buyer had asked for and received all this information for due-diligence including all the financial records along with a detailed and signed Sellers Disclosure Statement this might have been avoided.
As it stands now, he has retained an attorney to start an investigation and dialogue of why the QuickBooks files suddenly vanished after the deal closed and the financing was complete. Also he now finds out that Workers Comp may not have been in place on some of the employees!
More time in due-diligence would have prevented a lot of these missteps and a thorough completion of a Sellers Disclosure Statement about the business past would have made the previous owner think twice about not disclosing important material items to this deal.
Lesson for business buyers: Do a complete job of due-diligence, do not let anyone rush you to complete the deal, have a Sellers Disclosure Statement Form completed - or you may be spending more time on a lawsuit vs. running a new business!•
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