Due Diligence Hits Snags
Why did Brown and Hutchens sign up with Great Western without knowing who would perform their business evaluation or what odds they faced in finding a buyer through Great Western? Both sellers say that the sales reps with whom they dealt had skillfully gained their confidence. As for the papers they signed or initialed, Brown and Hutchens say they didn't read every word. "It's kind of like a house closing," Hutchens says. "Do you read over every document you sign? If so, you're going to be there two or three weeks." Sure, Brown and Hutchens admit, they should have read their contracts more carefully -- or had lawyers do it for them.
And what about due diligence? Before signing a contract, Brown and Hutchens asked Great Western for references to satisfied customers. The answer they say they received seemed plausible enough. Just as Great Western would keep Hutchens's and Brown's names confidential, so too did it have to respect the confidentiality of its other customers. Lamentably, it wasn't possible to supply references.
Before Brown signed his agreement, his wife, Gale, had called the Better Business Bureau of Metropolitan Dallas to check into Great Western's record. The bureau's recorded telephone report on the company, however, didn't allude to Great Western's 1997 expulsion from membership owing to complaints of misleading sales practices and slowness in resolving complaints. What Gale Brown did hear was an evenhanded message stating that the bureau had fielded a "pattern" of complaints concerning Great Western but that the company had responded to them "by explaining that it has met the terms of its written contract or by offering adjustments, where appropriate." Then, speaking with a bureau staff member, Gale "got, basically, a reiteration of the recorded message," she recalls. She was reassured, and her husband went ahead with the Great Western contract.
But the information Gale had obtained from the Better Business Bureau only hinted, at best, at the number of complaints that had been brought directly by customers to the company. When I asked McCreary for that number, he said, "I want to be very candid with you. Our tracking system for complaints was not in the past what it is today."
Evaluators Work at Home
For all their discontent with Great Western, Brown and Hutchens were pleased with the initial, on-the-spot estimates of their companies' value. After all, Brown and Hutchens hoped to cite the flattering numbers to potential buyers if the later, comprehensive evaluations indicated approximately the same values (as indeed they did).
Such alluring numbers apparently play an important role in Great Western's sales strategy. "In most cases you'll find that when you go out and perform a business evaluation, that the value of the business is substantially higher than what the owner originally indicated he was willing to take," Great Western sales manager Randy Kamin says in a training audiotape for the company's field consultants. "And that's why," Kamin goes on to advise, "it's so important for you to find out right up front, even over the phone, how much this owner is wanting, minimally, for this business. Because if you get him committed, and now you perform this evaluation that shows the value is truly higher, it would be a lot easier to justify the deposit."
Small-business owners, such as Brown and Hutchens, are actually inclined to overestimate the value of their companies, industry experts say. "Ninety-nine percent of the sellers feel that their business is so good that it warrants a very high price," says West, author of The Business Reference Guide. He adds, "It is very seldom supportable."
Brown and Hutchens finally did become concerned when they received their blue-jacketed, bound evaluation reports from Great Western. Two people, James Fisher and Richard Bivins, perform the lion's share of what the company calls "comprehensive" evaluations. On the day of my visit to Great Western's headquarters, McCreary called Fisher and Bivins and listened in on his speakerphone while I interviewed them. Using the same software-based procedure specified by Great Western, each man works out of a home office -- Bivins in Grapevine, Tex., and Fisher in Forth Worth. Bivins operates under the name of MidAmerica Business Services. Fisher's corporate moniker is Fisher Business Group Inc.
"It's kind of like a house closing. Do you read over every document you sign? If so, you're going to be there two or three weeks."
--Dewayne Hutchens
Bivins and Fisher say they had no experience as business evaluators before Great Western hired them. Bivins, who has a law degree from Western State in Fullerton, Calif., has been doing Great Western evaluations for almost four years. Fisher, a Carleton College graduate, has worked, among other jobs, as a real estate manager and as a mineral-rights negotiator on behalf of oil companies. Bivins says he "easily" knocks off 20 evaluations a week. Fisher, who has been at it since 1989, says he does 16 to 18 in his four-day workweek.
The day after I visited with McCreary, I drove to Fisher's Spanish-style, buff-toned brick house in a Fort Worth subdivision. A soft-spoken man with thinning white hair, Fisher escorted me to his compact office, which looked out on an oak-shaded backyard swimming pool. On a desk sat his workhorse: a Solera personal computer. The software that he used in his work for Great Western, Fisher explained, was "Aardvark's Business Valuation with Graphics, Version 2.0." Fisher said he bought the software in 1988 -- the last year it was available for sale, I learned later.
