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If you are a business buyer, you should absolutely love the business transaction process – especially the tenant of confidentiality and the need to sign non-disclosure agreements (NDAs). Why? Let’s first talk about why some business buyers hate NDAs.
When you enter the market to buy a business, many new buyers assume the process will be very much like the process to buy a house. Nothing could be farther from the truth. Buying a business does NOT involve looking up businesses for sale and then driving around to look at them before you pick one to buy.
Why? When you buy a business you are buying an existing, operating business.
In order for that business to stay existing and operating the fact it is for sale needs to stay a closely guarded secret. Confidentiality is key.
A breach in confidentiality and the disclosure that a business is for sale can mean very bad things. People naturally assume a business that is for sale is a business that is on the brink of failure, although this is rarely true. When a business sale is disclosed the staff can quit en masse, vendors can cancel contracts, clients can go elsewhere – the list goes on.
These potentially catastrophic consequences mean anyone who is interested in buying a business must sign the NDA before the name and location of that particular business is disclosed. Some buyers hate this and refuse to sign the NDA or fight with brokers about providing their own information to receive the NDA.
The information you provide in order to sign the NDA for a particular business is both simple and straightforward. You must provide your full name, your home address, your phone number and your email. Why do we need this information? Why can’t you use your P.O. box or a business address instead of your home address? The NDA you are signing needs to be tied to one individual – you – so the same address you use on your driver’s licence must be used.
If you really feel uncomfortable providing this information, you should consider that your simple identifying information is paltry in comparison to what a business discloses to you once the NDA is signed. Not only will you now know the name and location of the business that is for sale, you will likely gain access to financial information as well.
You should also consider that the information you provide to get the NDA is the same information you would provide when signing up for a discount card at a grocery store. It’s really not a huge disclosure of personal information when you think about it.
So why should you love the NDA? The business transaction process, including the NDA, ensures that the business you end up buying hasn’t had a catastrophic disclosure of confidentiality by you or any other prospective buyer before you get handed the keys. It means your new business will transfer to you intact and still operational.
Still need convincing that the NDA is a great thing for you as a buyer? Do you have additional questions about the business buying process? Ask us! Please feel free to leave questions or comments here and we would be happy to help.
Michael Monnot
941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907
www.InfinityBusinessBrokers.com
Is it commonplace for a seller’s broker to require the buyer’s financial information on an NDA?
Yes, it is fairly common on deals that the sellers broker will ask for some type of verification that the buyer has enough funds to purchase the business, operate, if necessary enough reserves to qualify for a lease and many other scenarios.
Although some buyers feel that it may put them at a disadvantage for negotiating purposes, the buyers broker can always convey to the sellers that although they have a buyer with significant assets or funds, the buyer has a significant worth because they are a smart and prudent business person giving the indication that just because the money is there doesn’t mean that you will spend whatever is necessary to acquire that particular business. Assure them that their legacy will continue, that their business is in good hands, many times employees are treated as family and convey that they will be taken care of…
If someone does not feel comfortable with disclosing their assets/financials, there are several ways that you may circumvent this.
Perhaps a letter from your bank stating you have the necessary liquidity to purchase the business, a pre-qualification letter from a bank as that will show you have the necessary funds and credit, and although I do not like this one myself, show just enough assets necessary to purchase and qualify.
But remember the seller is many times showing a buyer significant information, it does go both ways and generally a more open and honest transaction is a much easier transaction.