Things That Can Go Wrong During A Sales Transaction
That Sellers Needs to Know: Part 2
This article is a
continuation of Part 1 of the Things That Can Go
Wrong During a Sales Transaction. Part 1 discussed
the things that can go wrong from the Buyer’s side
and Part 2 will discuss how things can go wrong from
the Seller’s side. Restaurant Realty can work with a
Seller before the business is listed for sale to
help eliminate or reduce the potential problems
listed below when possible.
How Seller’s Actions Can Void the Deal:
1) Seller’s
Remorse – Seller’s remorse means that the Seller
has second thoughts about selling his or her
business and may want to back out of the deal for
several reasons. These reasons may include the
following:
a) The Seller
feels that he or she is not getting enough money
from the sale.
b) The Seller
feels that it is the wrong time to sell the
business and that waiting to sell it during
better economic times might get a higher selling
price.
c) The Seller is
concerned that he or she may not know what to do
when there is no longer a business to run.
d) The Seller has
younger children and starts thinking that maybe
one of the children may want to come into the
business in the future.
e) The Seller
feels that with the new developments going on in
the area the business may get significantly
stronger and may become substantially more
profitable. f) The Seller examines the tax
consequences of the proposed transaction and
realizes that the after tax proceeds, may not be
enough to live on.
Restaurant Realty
will have extensive conversations with the
Seller before the business is listed for sale to
determine the reasons the Seller wants to sell
and if the Seller is not fully committed to
selling the business at this time, Restaurant
Realty will advise the Seller to not list the
business.
2) Seller Goes
Bankrupt During the Transaction – There have
been some situations where a Seller is forced to
file bankruptcy during the transaction which means
the business is no longer saleable and physical
possession of the premises is taken back by the
landlord. Without a premises lease, a business is
not saleable.
3) Seller Gets Evicted During the Transaction
– There have been several situations where the
Seller gets evicted during the transaction for
nonpayment of back rent. After the Seller is
delinquent for back rent the landlord can file a
three-day notice whereby the landlord legally states
that if the tenant can’t pay the back rent within
three days a legal process will begin whereby the
tenant will be legally evicted and removed from the
premises and the landlord takes back possession of
the premises. Restaurant Realty would examine the
financial condition of the business before taking
the listing to advise a Seller how to avoid getting
evicted and how to avoid bankruptcy.
4)
Seller Can’t Support the Financial Statements –
There have been situations where certain
representations are made by the Seller regarding the
financial condition of the business and these
representations cannot be supported by the
appropriate financial documents whereby the Buyer
decides to withdraw from the transaction. Restaurant
Realty, when possible, will review the tax returns
and profit-and-loss statements for the past three
years as well as the year-to-date sales tax returns
and year-to-date profit and loss statements for the
current year before we take the listing.
5) Premises Deferred Maintenance Is Too Extensive
– There have been situations during the Buyer’s
due-diligence period relating to the inspection of
the physical premises when it was determined that
the corrective work was so extensive that the Buyer
would walk from the deal. In many cases this can be
solved by the Seller giving a credit to the Buyer
for completing this corrective work after the close
of escrow or the Seller completing the work to the
satisfaction of the Buyer before the close of
escrow. Restaurant Realty will advise the Seller to
make sure everything is in good working order and
that the Seller has completed a Change of Ownership
Health Department Inspection so the Seller knows
exactly what corrective work the Health Department
is going to require before putting the business on
the market.
6) Lawsuit Occurs During the Transaction –
There have been situations where a lawsuit is filed
against the Seller during the escrow period which
will prohibit the deal from closing until the
lawsuit is resolved in most cases. There is not much
Restaurant Realty can do in this case other than to
advise the parties not to proceed further in the
transaction until the lawsuit is resolved.
7) Tax Liens Are So Large That They Wipe Out
Seller’s Equity – There have been numerous
situations where the Seller has incurred tax liens
larger than their equity. This means there is not
enough cash available to pay off the Seller’s debts
which has resulted in the deal not closing.
Restaurant Realty will review the possibility of
these items occurring before we list the business
for sale.
As a result of Restaurant Realty’s extensive
experience in dealing with all of the above
situations, we know how to advise the Seller
appropriately regarding the feasibility and timing
of listing and selling your business.
Brothers With “Star” Quality
Syavash Alaee and Shahpour Alaie, partners and
brothers, have been in the restaurant business
together for almost 30 years. From 1978 to 2007 they
owned 6 different restaurants including The Roman
House in San Mateo, Barney’s Restaurant in Oakland,
Fat Fanny’s in Fremont, Café Le Monde in Albany,
Fruit Gallery in San Francisco, and Bistro in
Concord.
Syavash moved to the US from Iran in 1970 and
Shahpour followed shortly in1975. (When they moved,
their last names were translated differently.) Both
brothers attended UC Berkeley where Syavash obtained
a BS degree in Civil Engineering and Shahpour earned
a BA degree in Architecture. While they attended
school they worked for various restaurants, working
every aspect of the restaurant business.
These pro restaurateurs currently own the award
winning Luccas Italian Delicatessen in Castro Valley
and Buon Appetito in San Ramon. Restaurant Realty
has had the pleasure of working with these experts
in purchasing their third operating restaurant, Star
Restaurant in Novato.
We wish Syavash and Shahpour all the best with their
new restaurant and continued success with their
other restaurants.
