Real-Life Decision Making -- Solution
You don't tell the buyer about the inconsistencies.
In truth, the buyer is getting a good deal on the company, and the chances
are very good that the accountants will find the inconsistencies and make
the appropriate corrections before the final papers are signed. Besides, your
loyalties are to the seller, not the buyer. And the seller is going to get
exactly what he wants out of this deal.
You leave out the fact that you've recently discovered accounting
problems and the deal continues on. But just as you suspected,
the buyer's accountants do find the inconsistencies. That's when
the trouble starts.
Once the buyer learns that the company is not as profitable as originally
thought, the deal changes. In the beginning, the buyer isn't willing
to do business at all. But you manage to negotiate a different settlement.
The seller isn't as happy, but the deal will go through.
Unfortunately, word gets around that you were either not very thorough
or you purposely omitted facts that affected the deal. That makes business
tough. It doesn't put you completely out of business, but it does take
a long time to recover from the damage done.
"This is a high-risk, very frustrating business," says Guy Belanger, a
mergers and acquisitions financial specialist. "A lot of people don't
have the integrity it takes to do business. And integrity is something that
takes a long time to learn."