Talking about how much money you have is well, uncomfortable. It would be profoundly odd to approach someone at a party and ask how much cash is in their checking account. It’s considered extremely private information, and as such it’s not something most people want to be forthcoming about.

This natural resistance to disclosing your financial situation becomes a problem, however, if you’re trying to buy a business. Business brokers, sellers, commercial landlords and the like are all going to ask you how much money you have and to put that information into writing. Yikes, right?

Not really. Try to buy a house (or even look at houses to buy) without written preapproval from a bank. Most real estate agents won’t allow you in the door of their listing without proof you have the funds necessary to buy that house. Why? If you don’t have the money, it’s a colossal waste of everyone’s time.

The same rules apply in the business-for-sale world. You have to prove that you have enough to buy a business, have enough collateral to qualify for special funding, have the capital available to pay your lease and make payroll out of the gate, etc. No one wants to waste valuable time disclosing a business to someone who can’t actually buy it.

Notice we said disclosing and not showing. You can’t just go see a business for sale. Business sales are conducted under a veil of confidentiality – for many reasons. Sellers don’t want the entire staff to find out the business is for sale and quite en masse. They don’t want to lose critical contracts. They don’t want vendors to switch to the competition. They don’t want the profoundly powerful (and almost always profoundly incorrect) assumption that a business for sale is a business on the brink of failure to drive their regular clientele away. Confidentiality is very, very important.

What that means for you as a buyer is you can’t just waltz in anywhere, whenever you feel like it. You have to look at relatively vague business listings and then pick a few you like. You’ll then have your business broker get you the non-disclosure agreements (NDAs) for those businesses so you can find out the name, location and other confidential information like P&L statements.

In some cases, the sellers are going to request a financial statement from you before any NDA will be available to sign. This is a completely fair thing to request. They have the right to ensure that you’re a real buyer before they disclose to a complete stranger potentially damaging information. You’ll likely have to provide a statement about how much cash you currently have, stocks and the like, property you own and so on. And you’ll have to share this information with not only your broker, the seller’s broker and the seller but your future commercial landlord as well. So get comfortable with the idea early.

The point here is although it might initially feel like you’re divulging a lot of private information – you need to consider the trade off. You’re proving you’re a real buyer and a business owner is trusting you in return with everything about their business.

Are you looking at businesses to buy but aren’t comfortable with providing a financial statement? Would you like to know more about why confidentiality (and ensuring buyers are real buyers) is so important in business sales? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com