Why We Need You to Share Your Financial Info (and Sign an NDA)

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At the very beginning of our process we ask potential buyers to do two things:

• Sign an NDA
• Disclose some basic financial information

While this does not sound like a lot (because it isn’t) it often serves as a significant enough roadblock to keep us from moving forward. Why is that?

Your Financial Information

One of our brokers shared on a podcast episode that a potential buyer had very quickly signed an NDA, but had refused to disclose any financial information: “My financial information is none of your business,I have enough money to buy this company and I don’t know anything about you.” While that’s certainly true that you may not personally know anyone you share financial information with, it’s context that matters. When you apply for a credit card or a loan, they may not know you personally (and in a certain sense, it doesn’t matter) but they can get an idea about you, at least the part relevant for their decisions, from numbers.

Numbers don’t lie. They aren’t emotional. And for us as brokers, this first hurdle is a bare minimum. Some brokers will require you to disclose all your real estate and security holdings and other such more in-depth information, but for a first conversation about a business, we will need at bare minimum your free cash to invest and your net worth. These numbers verify that you are qualified financially to talk about this opportunity. If this is still really troublesome for someone, we would always happily accept a letter from your banker attesting to your financial capability to execute this deal.

While there’s a minimum of due diligence on our side at this stage in the process, it’s also a question of a level playing field. We can’t just take someone’s word for it: we have to treat every potential buyer equally. If someone thinks he/she deserves special treatment, that’s an early warning to us that this might turn into a very difficult deal.

A Non-Disclosure Agreement

As we’ve said so often here, confidentiality is key in business transactions. We have a responsibility to the seller to make sure that employees or customers don’t find out that a business is for sale. Key employees may leave and customers, not knowing what might happen, might flee to the competition prematurely.

A buyer is invested in neither of those things happening, so a non-disclosure is the first step in protecting the future worth of a business.

Can an NDA be negotiated?

This isn’t something we are opposed to in principle. In some specialized cases or in particular industries a slightly modified version of the very basic NDA we offer might make sense. But more often than not, it’s a red flag of a buyer being managed by an attorney, rather than the other way around.

Exceptions

We can answer a question or two if it’s broad and generic enough. For example, if you are calling about a medical business and you want to know if it has Medicare involved or not (because that’s a dealbreaker for you) we can answer that without making you sign an NDA or share your financial information. Or maybe you want to know if the business is residential vs. commercial, or even how it performed during Covid. A very basic question which for you is a baseline for even looking into a business is totally reasonable. But again, this is not something we run into too often, and it still demonstrates the importance of what we’ve spoken about above.

Promising confidentiality and sharing basic financial information is table stakes for any serious buyer looking to acquire a business. It also serves as a screener for us as brokers. If you make it difficult for us just to get these things done, there’s no way you are going to make it through a months-long process which is going to be far more intense and possibly invasive than these two requirements.

If you’re looking to buy a business, and don’t have any problems signing an NDA or sharing financial information, give us a call.