By Bruce Pockrandt, CBI
Managing Broker, Truforte Business Group
If you are considering selling your Florida business, you may have an important concern:
Who gets to see my financial information?
The short answer is: not everyone who asks.
At Truforte Business Group, protecting a seller’s confidential information is an important part of the business sale process. A prospective buyer expressing interest does not automatically mean that person should receive detailed financial statements, tax returns, customer information, or other sensitive information.
Before serious confidential information is released, we want to know more about the buyer.
Are they financially capable of purchasing the business?
Do they appear serious?
What type of business are they looking for?
What is motivating the acquisition?
What is their timeframe?
Do they have relevant experience?
How do they expect to finance the transaction?
Buyer qualification is not about making the process difficult for legitimate buyers. It is about protecting sellers and concentrating our efforts on prospects who have a realistic possibility of completing a transaction.
When selling a business, you are sharing information that you would probably never provide to a stranger under ordinary circumstances.
That could eventually include revenue, profitability, payroll, lease information, equipment, contracts, customer concentration, employee information, operating procedures and other sensitive details.
You should know something about the person requesting that information.
Not everyone who searches businesses for sale is ready to buy.
Some people are simply exploring.
Others may have unrealistic expectations about financing.
Some may be looking at dozens of opportunities without having established clear acquisition criteria.
Occasionally, an inquiry may even come from someone whose interest creates a competitive or confidentiality concern.
Our goal is to identify serious buyers while limiting unnecessary exposure of the seller’s information.
Before identifying information is released, prospective buyers are generally required to execute a confidentiality or non-disclosure agreement.
This establishes expectations concerning how confidential information may be used and disclosed.
But an NDA alone doesn’t make someone a qualified buyer.
It is the beginning of the process, not the end.
One of the most important questions is whether the prospective buyer has the financial capacity to acquire the business.
Suppose a business is priced at $2 million.
A prospective buyer with very little available capital may love the company, but enthusiasm doesn’t finance an acquisition.
Depending on the transaction, we may want to understand the buyer’s available liquidity, expected down payment, access to financing, investment range, or proof of funds.
If SBA or other lender financing is contemplated, the buyer’s financial profile and the business itself may both affect financing.
The objective is simple:
Does this buyer appear to have a realistic path to closing?
A financially capable buyer can still be the wrong buyer.
We want to understand the buyer’s acquisition criteria.
That may include:
For example, someone looking for a semi-absentee business may not be appropriate for a company requiring a highly involved owner-operator.
Understanding the buyer’s objectives saves everyone’s time.
Motivation matters.
Some buyers want to leave corporate employment and become entrepreneurs.
Others already own companies and are looking for strategic acquisitions.
Some are private equity groups or family offices.
Others are relocating to Florida.
International entrepreneurs may be seeking an operating business as part of an E-2 visa strategy with their immigration counsel.
Understanding motivation helps us determine whether the opportunity fits what the buyer is actually trying to accomplish.
A buyer doesn’t necessarily need decades of direct industry experience.
However, some businesses require specialized knowledge, professional licensing, technical expertise, or management experience.
Experience can also affect financing.
If a buyer has never managed employees, never operated a business, and has no experience related to the industry, that does not automatically eliminate the buyer—but it may create additional questions.
The important issue is whether there is a reasonable match between the buyer and the opportunity.
One mistake sellers sometimes make when attempting to sell a business themselves is providing too much information too quickly.
I prefer a staged process.
A prospective buyer might initially see a confidential advertisement containing enough information to determine whether the opportunity warrants further investigation without revealing the identity of the business.
After confidentiality requirements and initial qualification have been satisfied, additional information can be released.
More sensitive information may be reserved for later stages when the buyer has demonstrated serious interest.
Detailed due diligence generally occurs after the parties have reached an agreement or accepted an offer subject to verification.
This approach helps protect the seller while still providing legitimate buyers with the information they need.
Business owners still have companies to run while their businesses are on the market.
Every unnecessary buyer meeting, phone call, financial request and tour takes attention away from running the business.
A business broker’s job isn’t simply to generate as many inquiries as possible.
It is to help turn inquiries into qualified opportunities.
I’d rather have a seller spend time with several serious buyers than dozens of people who were never realistically capable of buying the company.
Confidentiality and qualification are closely connected.
Imagine sensitive information being distributed freely to dozens or hundreds of people.
Eventually, someone may recognize the company.
Employees could hear rumors.
Competitors might learn the business is for sale.
Customers could become concerned.
Limiting detailed information to appropriate prospects helps reduce those risks.
Legitimate buyers generally understand why sellers require confidentiality and financial qualification.
If you’re asking an owner to disclose years of financial and operational information, it is reasonable for the owner to want to know who you are and whether you have the resources to pursue the transaction.
The process should protect both parties.
When selling a Florida business, the number of inquiries isn’t necessarily the best measure of success.
One properly qualified buyer can purchase the business.
One hundred unqualified inquiries cannot.
Our objective at Truforte Business Group is to confidentially expose the opportunity to the marketplace while helping identify buyers with the financial capacity, motivation and potential ability to complete the transaction.
That protects the seller’s information, saves time and helps create a more orderly sale process.
Related reading: How to Sell a Business in Florida: A Step-by-Step Guide and selling a business with Truforte.
Generally, detailed financial and confidential information should not be handed to every person who makes an inquiry. Information can be released progressively as a buyer satisfies confidentiality requirements and demonstrates serious interest.
No. An NDA addresses confidentiality. Financial capability, motivation, experience and acquisition criteria are separate parts of buyer qualification.
Because sellers need reasonable confidence that a prospective buyer has the financial ability or financing strategy necessary to pursue the acquisition.
Confidential business marketing can use a blind description that provides important information without initially revealing the company’s identity.
It can happen. That is one reason confidentiality, screening and controlled information release are important.
Bruce Pockrandt, CBI, is Managing Broker of Truforte Business Group and a Florida business broker specializing in business valuations, confidential business sales, buyer qualification and helping owners prepare their businesses for sale.
This article is part of Bruce’s Guide to Selling a Florida Business.
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If you’re considering selling your Florida business now or in the future, contact Truforte Business Group at 239-284-1317 or visit TruforteBusinessGroup.com.