How do we manage ‘disorganized liabilities’ like gift certificates when transferring a business? - David C Barnett
I was once brought
in to consult on a business purchase deal that had gone bad.The deal had been put together by a real
estate agent and the agreement didn’t address a lot of the ‘business’ issues
relating to the motel/restaurant being sold.
In fact, there was
nothing in the agreement about outstanding liabilities.
In the month
leading up to the sale of the business, the seller held a promotion and sold
$100 gift certificates for $80. When the
deal was done, the buyer soon learned about all the gift cards that were
What was the man to
do? Risk upsetting all these customers by refusing to accept the gift
His only remedy was
a costly legal one. He sued the seller
and the realtor who ended up losing his license over the fiasco.
But what is the
correct way to deal with this kind of thing?
Easy, by making the seller responsible for outstanding liabilities and
creating a system of accountability which assures the buyer they won’t get
Here’s an example:
Buy the motel/restaurant with some portion financed by the seller. The monthly payments can be made via cheque –or-
by passing along collected gift certificates.
To the seller they’re as good as cash because he already collected the
cash without having to deliver the service. If some certificates are never redeemed, the
seller gets to keep that cash.
The only thing we
have to do in this system is ensure that the new owner is issuing distinctively
different gift certificates from those of the seller so they can be easily
Watch the video
to learn what one very sophisticated seller negotiated when this issue came up
in his business transfer.
Don’t leave the
details of such a complex transaction up to amateurs! If you’re going to buy or
sell a business, give me a call at (506) 381-8416 and let me help you make sure
your deal works out properly.
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