A caller to our office was really mad because he had just bought a business and felt that he didn’t get what he had bargained for.  Seems that the company he is now running makes deliveries to grocery stores and their biggest client as of August was Dominick’s.

Perhaps the person that sold him the business knew that store was closing and that’s why he wanted to get out.  And if he had hid that information from the buyer then there might have been the basis for a commercial litigation lawsuit.  Maybe.

The problem is that this deal didn’t close until November and by then, the fact that Dominick’s was shutting their doors was common knowledge.  It was on the front page of all of the newspapers and all over the news.

But my caller was so focused on the excitement of owning his own company and getting what he believed to be a steal, that he ignored or somehow didn’t know about the store closings.

So he has a good business that is now worth about 70% less than it was when the stores were opened.  He thinks that the seller should give him a refund because in his mind the success of the company was misrepresented.  The problem is that the numbers that were given were from July and they were accurate for that time.  And beyond that, there is no way this gentlemen should have relied on those numbers once the closing became big news.

The most important thing to do in any business deal is your due diligence.  You can be given financial information, but you must verify it.  You can be told that a certain store is your biggest client, but you need to make sure that relationship will continue.  He should have called on these stores and asked of their future plans.  And of course he should have used the internet for research on them and their future.

The biggest mistake he made was not retaining an attorney.  A good business lawyer will take the emotion out of a situation and objectively tell you what to be aware of including doing your due diligence.  In a case like this, if an attorney hadn’t pointed out that Dominick’s was closing they’d probably be liable for a legal malpractice lawsuit.

I get why he was so excited.  Starting your own business and being your own boss is a great thing.  You must do it right though because if you try and fail, getting the chance to do it again will be much more difficult.  And even if he somehow did have the basis of a lawsuit now, that would mean thousands in lawyer fees and the litigation could takes a couple of years.  Had he just done his homework and made a thoughtful buying decision with his head instead of his heart, he would never have been in this position.  Or even better yet, perhaps he could have paid the true value of what the business is currently worth.