- Jacob is interested in buying a small retail clothing business called ‘Sport ‘n Surf’ in
- Cronulla. One Saturday, Jacob runs into two former school friends, Rose, who owns
- a hairdressing salon in Cronulla and Geoff, who is a business broker specialising in
- matching prospective business buyers with sellers in the hotel sector. Jacob tells
- Rose and Geoff that he is considering buying the business. Rose tells Jacob that
- Cronulla is booming and that the business is sure to do well, as everyone in Cronulla
- surfs and plays a sport of some description. Geoff, who is not an accountant, offers
- to have a look at the books of the business and give Jacob his view. The books of
- the business have been prepared by Water Accounting Services, the business’ usual
- accountants. Geoff inspects the books and tells Jacob that the business is doing well
- and that it made a profit of $120,000 last year. In fact, due to an error by Water
- Accounting Services, the profit was reported as $120,000 when in fact it was
- $12,000. Geoff advises Jacob that based on the past profit disclosed in the
- accounts and his own observations of the business, the purchase price sought by
- the sellers at $250,000 extremely reasonable.
- Jacob bought the business for $250,000 and at the end of twelve months is very
- disappointed to find that his profit was only $12,000. He learns from other business
- brokers that a reasonable purchase price for the business, even based on a profit of
- $120,000 would have been $200,000, but clearly less if based on a profit of $12,000.
- Discuss whether Jacob may have been owed a duty of care on the above facts, and
- if so, by whom. Fully explain your answer.
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Jacob is interested in buying a small retail clothing business called ‘Sport ‘n Surf’ in Cronulla. was first posted on November 17, 2023 at 8:19 am.
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