10 Ways Business Buyers Cheat Sellers

If this is the first time you're selling a business, you can't afford to miss this page on how buyers cheat sellers. There are genuine and honest buyers out there, but there are a lot of the other kind as well - crafty, conniving and highly deceptive ones!

This page doesn't cover typical £1 Charlies. There's a whole different page on that.

Back to how acquirers cheat vendors / business sellers... (and don't miss the bonus #11 below which is a corker).

2. How business buyers cheat sellers: The trick question about lawyers

Buyers often ask the seller, early on, who their lawyers are.

This is a trick question. They want to know whether it's some local generalist or a hard nosed city M&A firm. Or whether the seller has a lawyer at all.

It's the same with accountants - they'll casually ask whether the seller is using their own accountant or have hired one specialised in M&A / deals

A seller can tell them it's irrelevant at this stage! It is not a requirement that the seller has a lawyer lined up when listing their business for sale. Hiring a lawyer comes much later (and after agreeing outline terms with a buyer).

The seller doesn't need to disclose who they intend using for accountancy / tax / transaction advice either.

Tip: Sellers can, however, demand that the buyer appoint a lawyer before proceeding past the basic and initial stages. Appointing a lawyer will cost the buyer money (advance fees) and taking this step is a good indication as to whether they are serious buyers or just tyre kickers.

3. Using the seller's own lawyer against the seller - fee squeezing

If the seller does have a competent lawyer, that'll get some buyers very excited because they can now play the fee-squeezing game.

They'll drag the transaction out and make the kind of DD demands and create the legal roadblocks that will run the seller's legal fees up.

That's to put the seller under pressure to get the deal done. The more the seller has sunk into lawyer fees, the more they'll feel pain and want it all over as quickly as possible.

That's the logic.

Even if the seller isn't going to make big concessions under pressure, they are prone to making mistakes. That's what the buyer is after!

Tip: Sellers can give the buyer the impression they've got a fixed price deal with a lawyer (yes, there are legal firms that do these transactions at a fixed fee!) but not disclose the lawyer's name till later in the process and when they're ready to bring the lawyer in. 

4. How business buyers cheat sellers with deadline dancing

Buyers don't like accepting deadlines, but want to impose deadlines on the seller!

It's a control thing.

When the seller mentions a deadline, they'll not respond to it or pretend they didn't hear.

Sellers don't need to take that! They can stop and insist on confirmation that the buyer accepts that they'll do 'x' or 'y' by that deadline.

The seller can press them on whether they've heard and clearly understood the deadline and can also require confirmation of that acceptance by email (so it's clearly laid out in writing).

On the other hand, buyers love imposing deadlines on sellers. It's a seller's job to not feel under pressure. That's where it's handy to have an intermediary / broker as a buffer. The seller can say that they can't agree to anything without speaking with their business broker first.

5. Buyers cheat sellers with the one way price movement trap

At the start some savvy buyers will say that it's their strict policy that the offer price will only go down and never go up i.e. they won't get into any bidding situation.

This is an artificial ceiling, sellers do not need to accept this condition.

There will be occasions in the negotiations or later on in the deal progression where the seller is asked to make concessions. Sellers need to have the flexibility to adjust the price upwards in exchange for any concessions they make.

6. The 'fall back phantom' buyer cheat

Buyers will use imaginary partners. "I'm not sure my partner would agree to that" or even "I'm not sure my lawyer will agree to that".

They'll agree final terms with the seller and then try to renegotiate terms days later using the excuse that their "partner" is not agreeing to x, y or z.

They'll continue, "Let me check with my partner / lawyer and get back but, help me out here, what happens if he gets back and the answer is no? How do we proceed?"

That's a ploy! They're pre-preparing the business owner for a "no".

Tip: The seller's reply can be, "Let's not get into hypothetical situations. Let's stop all this discussion right now. If you aren't capable of taking decisions yourself then let me talk directly with the organ grinder or bring them along to the next meeting."

...or something along those lines.

7. The business buyer blackmail trap

Buyers / acquirers sometimes try to get the seller to admit accounting fraud.

For example, "Did you pay your spouse a salary even if s/he is not doing any work?"

Sellers often try to make the profit figures look better. It's not unusual for them to say that they are paying their spouse a salary, to use up his/her personal allowance, even through the spouse does no work in the business.

They believe the buyer will then mentally adjust the expected profit figure upwards as they won't be paying that spouse salary once they acquire the business, and that therefore it'll mean a higher price for the business.

Though such salary payments are commonly done in small businesses, it is actually an offence / tax fraud so admitting to it in writing puts the seller in a vulnerable position.

Buyers know this and some try to get the seller to make some such "confession" in an email exchange as it then opens the seller up to some blackmail later.

If a seller has paid a salary to their spouse despite them not working in the business, they'd be wise to not put it in writing to the buyer!

The same with "personal expenses" that the seller may have run through the business. While it's tempting to show that the profit on the books doesn't include various personal expenses.... the seller is effectively admitting, in writing, to a criminal act!

There are several other such traps buyers set to lay the stage for a future soft-blackmail attempt.

8. Talking about money is so crass

Some of these buyers want to get the seller away from talking about money and talk instead about the change of lifestyle the sale will give them, the freedom etc.

They'll ask what the seller is going to do with all their free time post-sale, what plans they have for this 'retirement' and so on.

There is an ulterior motive in taking the conversation in that direction.

Initially they don't want to meet, they want to talk with on the phone. And they don't want to talk money. "My mother told me not to discuss money on the phone".

They want to work out what's important to the seller - keeping the seller's name above the board or protecting certain staff or some other consideration.

They're probing for what they can offer instead of cash. They're looking for what promises they can make (and later break) in exchange for a price reduction when the time comes to negotiate.

9. The eager beaver problem

If the buyer offers a price (or agrees a price) BEFORE a detailed look at the accounts and everything else, that's suspicious.

That's not what buyers typically do, not even for businesses (targets) that look amazing on paper.  

If they do agree to pay "full asking price" early on, or a very attractive price, the chances are that they are up to something.

Either they're looking to "chip away" at the price during due diligence (justified by whatever minor 'flaws' they find in the business) or they're considering maintaining that price but later changing the accompanying terms (deferred payments over many years, earn outs etc) to the seller's detriment ie. reducing the cash component of the price and substantially increasing the element that's going to be deferred far into the future.

10. The keen learners

When a buyer writes from a .edu email address, the chances are that they are not real buyers but students working on an MBA (or similar) project.

They are perhaps collecting information from the seller as part of a homework assignment to analyse accounts and / or demonstrate ability to do due diligence. 

Engaging with them is a waste of time.

Tip: It's best to just ignore those emails rather than letting on about sussing their .edu address.

11. Putting in a serious offer

This happened to a tech / SaaS company not so long ago.

They found a buyer, a well-funded, well-reputed tech firm. The buyer put in a formal written offer under condition they had exclusivity on the deal for six (which exclusivity requirement is not unusual in these deals).

The vendors were delighted with the offer and stopped their fund raising efforts. Close to the end of the six months, they had run out of money but, well, they were expecting the deal to close and the coffers to be replenished.

The buyer then pulled their offer - "take us to court on this if you want!".

The vendors were stuck. The business went insolvent. The very same buyers came back in and bought the business for a song from the insolvency practitioner. They paid less than a tenth of the original offer price.

That was the plan all along!

Conclusion to how business buyers cheat sellers

No page on "buyer cheats" is complete without  the specific, highly sophisticated cheats the £1 Charlies use.

The best way to beat buyers playing games is to have an experienced M&A player on your team - a well reputed business broker (many are not!) or, better still, an M&A firm / corporate finance firm (the type of firms that handle the sale of mid-market businesses).

Need assistance dealing with a buyer or assessing if they're genuine? Book a consultation with me.

- Clinton Lee