Fraudulent Business Sale

[KenleyGalven]

What is the name of your state (only U.S. law)? Oklahoma

Hello All,

I am looking at buying a business that seems like it's too good to be true. I don't have any proof or even any evidence to suggest the business isn't legitimate, but what steps can I take to ensure I'm not being sold something fake? My concern is that the seller has falsified financial statements, used personal money to make bank transactions, made false tax documents with fake income and paid taxes so it seems legitimate, developed fake invoices and receipts, etc.

For one of my points below, it's important to know that this company actually BUYS products from its customers and sell them to larger companies that market and resell the items.

Here are some things I've already considered:

1. I plan to try to stake out the place to ensure there are real customers, but I don't want to draw attention from the employees inside. It's not a business where they are busier at certain times of the day or on certain days. So it's hard to know when to go by and observe.
2. I plan to send in a customer to carry out a transaction and then look for that transaction in their books when I'm going through the due diligence.
3. I want to call some of the companies to whom they sell their purchased items to verify the revenue is legitimate, but I'm not allowed to disclose that the business is for sale. How can I accomplish this?

 

[Zigner]

The old saying goes something like this: If it seems to be too good to be true, it probably is too good to be true.

I would suggest that you consult with some local professionals for assistance. Don't just try to wing it on your own.

 

[KenleyGalven]

The old saying goes something like this: If it seems to be too good to be true, it probably is too good to be true.

I would suggest that you consult with some local professionals for assistance. Don't just try to wing it on your own.

Thank you for your advice. I've heard that saying as well, and I certainly plan to have an attorney and CPA look over everything too.

I think I'm taking all the steps I can to ensure it's legitimate, but I'm hoping for feedback that might provide me with some additional ideas about how to verify the business's validity.

I met with the seller at a broker's office and I was able to ask some pretty probing questions. I didn't get even the slightest sense that he was lying. I just want to cover myself, because I know there are really good con artists.

 

[PayrollHRGuy]

I'm not asking you be specific but what type of business is it? You mention seeing if customers actually show up but then you mention companies they sell to.


Don't answer this question if KenleyGalven is your real name.

 

[LdiJ]

Thank you for your advice. I've heard that saying as well, and I certainly plan to have an attorney and CPA look over everything too.

I think I'm taking all the steps I can to ensure it's legitimate, but I'm hoping for feedback that might provide me with some additional ideas about how to verify the business's validity.

I met with the seller at a broker's office and I was able to ask some pretty probing questions. I didn't get even the slightest sense that he was lying. I just want to cover myself, because I know there are really good con artists.

If you know who some of his alleged vendors are, you could call the vendors to do a credit check on the business (as if you were a potential new vendor), if you know who some of the customers are, you could call them and ask for a review of them as a vendor (do they make deliveries on time, are shipments accurate? etc).

 

[KenleyGalven]

I'm not asking you be specific but what type of business is it? You mention seeing if customers actually show up but then you mention companies they sell to.


Don't answer this question if KenleyGalven is your real name.

It's not my real name.

I mentioned in the edited version of the OP that they actually buy items from their customers and sell to a larger company that re-sells the items. It was an edit I made a minute or two after the OP.

It's a sort of currency exchange company.

 

[KenleyGalven]

If you know who some of his alleged vendors are, you could call the vendors to do a credit check on the business (as if you were a potential new vendor), if you know who some of the customers are, you could call them and ask for a review of them as a vendor (do they make deliveries on time, are shipments accurate? etc).

Excellent advice. In that way I wouldn't need to divulge that I'm a potential buyer. Thank you very much!

 

[PayrollHRGuy]

It's not my real name.

I mentioned in the edited version of the OP that they actually buy items from their customers and sell to a larger company that re-sells the items. It was an edit I made a minute or two after the OP.

It's a sort of currency exchange company.

So their customers are actually their vendors. That will be sort of hard to get info from. Have you Googled the heck out of them? See what others are saying about them.

It seems you already know they are cooking the books so I know I wouldn't buy the business.

 

[KenleyGalven]

So their customers are actually their vendors. That will be sort of hard to get info from. Have you Googled the heck out of them? See what others are saying about them.

It seems you already know they are cooking the books so I know I wouldn't buy the business.

I have Googled them, and I've looked at their Facebook. Nothing out of the ordinary. It's a relatively small business, so there's not a lot to see.

I don't know they're cooking the books. I have no reason to think they're cooking the books other than the high revenue for such a simple business. I'm trying to practice "trust, but verify."

 

[PayrollHRGuy]

It is called due diligence and it is exactly what you should be doing.

He shouldn't have a problem with you hanging around a few days and seeing how things work before you finalize the deal.

But if it seems too good to be true it probably is but the only way you are going to find out is to really get in there and dig around.

 

[KenleyGalven]

It is called due diligence and it is exactly what you should be doing.

He shouldn't have a problem with you hanging around a few days and seeing how things work before you finalize the deal.

But if it seems too good to be true it probably is but the only way you are going to find out is to really get in there and dig around.

I understand. The brokers I've worked with typically insist that the employees not know the sale is happening. That's the only reason I can't hang out in the building during working hours, even during due diligence. But I assure you, I'll be doing everything they allow me to do that doesn't potentially damage the business.

I very much appreciate your insight.

 

[Zigner]

I understand. The brokers I've worked with typically insist that the employees not know the sale is happening. That's the only reason I can't hang out in the building during working hours, even during due diligence. But I assure you, I'll be doing everything they allow me to do that doesn't potentially damage the business.

I very much appreciate your insight.

That's a HUGE red flag. There are plenty of ways for you to be in the office during working hours that wouldn't lead to the employees being aware of the sale.

 

[KenleyGalven]

That's a HUGE red flag. There are plenty of ways for you to be in the office during working hours that wouldn't lead to the employees being aware of the sale.

Maybe I'll see if they will train me like I'm going to be a new employee. Then I would have a good reason to be there. I don't think they would completely disallow me to be there as long as the employees don't know.

 

[PayrollHRGuy]

Or better yet, you are a business consultant coming in to work with the owner. That will allow you to ask questions and be in the office with the owner looking at the books.

 

[KenleyGalven]

Or better yet, you are a business consultant coming in to work with the owner. That will allow you to ask questions and be in the office with the owner looking at the books.

Another great idea. I definitely came to the right place.