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Troubled Business Signs to Look For

  1. Employees comment that customers are complaining about poor service, poor maintenance conditions, and the quality and quantity of menu items.
  2. Sellers owe back vendor debt, tax debt, etc.
  3. Seller is having to pay all bills cash on delivery (COD) when the merchandise is delivered.
  4. The employees are disgruntled, and some employees jobs have been eliminated.
  5. Landlord is motivated to get new tenant as the current tenant has had a history of paying the rent late, and has serious issues with rent being in arrears/late.
  6. Business has reduced its days and hours of operation.
  7. Businesses owner and family members are working excessive hours in the business.
  8. Lots of obvious deferred maintenance, and many pieces of the equipment are not in working order.
  9. Saleable inventory (food, beverage, cleaning and paper supplies) is low, and several menu items are not available due to inventory shortages.
  10. Premises are not clean.
  11. Seller wants buyer to take possession of the premises before the close of escrow.
  12. The ABC (alcohol) license, health department license, and business license have been suspended for delinquent renewal payments. If the business is a limited liability company (LLC) or corporation, these entities have been suspended by the state for non-payment of renewal fees.
  13. The dishwasher is rented, and the vendor wants to remove this item for excessive late monthly rental payments.
  14. Through a review of the books and records, it is determined that back taxes are due to various taxing agencies including the Internal Revenue Service (IRS), Franchise Tax Board (FTB) in California, State Board of Equalization (SBE) in California, and Employment Development Department (EDD) in California. In California, unless the seller can get tax clearances from these agencies during the escrow, the escrow will not be able to close, and these agencies could ultimately close the business.
  15. In checking with the landlord, it is determined that the landlord is owed several months of back rent, and is the owner is on the verge of being evicted from the premises.
  16. The business has been for sale for a long period, with several price reductions during this period and very little buyer activity.

If an experienced buyer looks for the above warning signs, and uses his or her negotiating skills in dealing with the seller and landlord, the buyer can turn a seller’s losing business into a winning opportunity.