Monday, May 23, 2016

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 circulating.

What was the man to do? Risk upsetting all these customers by refusing to accept the gift certificates?
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 ripped off.

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 identified.

Watch the video here: 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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