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Q & A Session: What are Some Pitfalls for Either Buyer or Seller in the Purchase/Sale of a Business
As seen in San Jose Business Journal
by Michael Sipe

Q: What are some pitfalls for either buyer or seller in the purchase/sale of a business?

A: "The buyer should be wary of several areas of concentration. If the business for sale has a very tight concentration of either customers or vendors, what will happen if one of those fails the buyer?

"We looked at a company to sell that had $8 million in sales. They were in electronic optics. I asked about the vendors. Only one vendor made the key lenses. Two weeks later the lens maker shut down and the for-sale business had to also."

"Another area of concentration is the employees. Is it a group that would be difficult to replace? Is there one key person on which the success of the business hangs? If that person is in sales or marketing, what if they quit and go to a competitor?"

"The buyer should look at the recent changes in the real estate market. Lease rates can double, triple and quadruple with the change of ownership. That will impact net income. Over the next three years, as leases terminate, there will be a dramatic impact on small businesses. Many will be put out of business and there may be an ensuing inflation factor."

Mike Sipe
President
Private Equities
San Jose
 

Michael Sipe is president of Private Equities, a middle market mergers and acquisitions firm. You can reach him on:408.295.4299 or at inquiry@private-equities.com.
 

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