Avoid Groupon Discounting The Value Of Your Business

John Kafrouni

11 Apr 2013

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min read

It could be 65% off a five night, five star holiday in Phuket for $999 or 71% off a fresh seafood basket at a local Brisbane take away shop for $16. A few years on from Groupon’s launch in 2008, group buying by consumers is becoming an everyday consideration for many business owners and consumers. It is now more than just marketing for some businesses that rely on the “Groupons” of the world as their primary, if not sole, source of income. As a result, coupons, vouchers and gift certificates have become a greater consideration when a business is being sold.

Legally, the business owner who sold the coupon is liable to honour that deal, even if they may have sold their business. Therefore, they must take great care to ensure the buyer of their business agrees to honour the deals. But that’s not all. If customer receives poor services or defective goods from the new owner, that could also land the original business owner in trouble. These risks must be addressed by anyone selling a business.

Now let’s consider the buyer’s perspective. If they are going to be responsible for honouring the deals sold by the previous owner, what’s in it for them? Sure they will get people through the door, but at what cost? A buyer should obtain reasonable compensation from the seller for honouring the deals. Also, a buyer must find out what is required to meet the coupon obligations. If profit is not made from honouring the coupon (or even worse, a loss is made) can the buyer actually afford the exercise? If so, the buyer must be careful not to be swamped with customers using coupons at once. The last thing a new business owner wants is a bad reputation for running out of goods or delivering poor service. If this is possible, the value of the business should be discounted to accommodate the risk.

Business owners who provide products and services through the likes of Groupon, and those considering buying such businesses, must carefully consider “coupon risk” when a business is sold. It is recommended they discuss this with their business lawyer before they sign any contract. A failure to do so could cause a nightmare for the new business owner. For the seller, it might mean visiting the local court house instead of Paris!

Joe Kafrouni, Legal Practitioner Director, Kafrouni Lawyers

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