What Records Should I Make Available to a Potential Buyer?

What Records Should I Make Available to a Potential Buyer?

Yes, this is business, but for you, the small business owner, it feels personal. Your business is special, important and it is yours. So when it comes time to revealing sensitive information to a total stranger (the buyer), it is natural for you to be cautious.

It is true, that potential buyer is a stranger. It is someone who probably doesn't know you and someone who most certainly is not privy to the details of your business. And that is why sharing is important. That buyer is not going to blindly put up cash to buy your business, knowing nothing about it.

One way to dampen the shock of sharing sensitive information is to do it in stages and to get something in return for each successive revelation. A professional business broker can guide you through these stages, making sure that your information is protected and making sure you are rewarded for each layer you reveal.

The first step will be to assemble some basic, high-level financial information that gives potential buyers a sense of the size and profitability of the business. Listings without a minimum of financial disclosure will attract little or no attention. The bare minimum would be annual sales volume and some measure of profitability. Small business listings typically show figures for Cash Flow or Seller's Discretionary Earnings. These figures will give potential buyers an answer to what's in it for me? Your professional business broker will guide you in developing this financial snapshot.

If the potential buyer wants to know more, it is his turn to give something to you. In this case that something would be a Non-Disclosure Agreement (NDA), a promise to keep any company information in confidence. With an NDA in hand, your broker can peel back the onion a bit and give that prospect more detailed financial statements, usually for the most recent three years.

After reviewing the financials and perhaps meeting with the owner, the buyer should be ready to take the next step: a Letter of Intent. The LOI outlines the basic terms of a deal to buy the business. If the parties can agree on these terms, then it is time for the buyer to put up a cash deposit, which will be held in escrow. In exchange for the deposit and the Letter of Intent, the buyer will be entitled to a deeper dive into the business, known as Due Diligence.

Due Diligence normally includes a review of recent tax returns, monthly bank statements and other records that would provide outside verification for the figures shown in the company's financial statements. Diligence would also include a review of documents critical to the operation of the business, such as a lease for the space that the business occupies and any licenses or permits required to operate the business. A satisfactory due diligence review then paves the way for a smooth transaction.

Sharing may be scary at first, but if done properly, it will get the deal done. For more information on selling your business contact a broker today!

Schedule Your Consultation Now