By Dave Driscoll
A business broker’s responsibility is to protect each seller’s proprietary and financial information, along with the integrity of the business’ operations. A breach in that responsibility places the company in jeopardy of loss of business and value.
Reputable brokerages protect seller’s interests by requiring prospective buyers to conform to a rigid process prior to revealing the company’s identity or detailed information.
To qualify to receive confidential data about the business for sale, prospective buyers must complete two steps:
- Execute a Confidentiality and Non-Disclosure Agreement
- Provide sufficient financial information to demonstrate their ability to consummate a transaction at the appropriate price range
Before receiving any identifying, proprietary, or comprehensive information beyond the public listing notice, prospective buyers MUST execute a Confidentiality and Non-Disclosure Agreement agreeing to keep all seller information confidential. This is non-negotiable.
A Confidentiality and Non-Disclosure Agreement contains key clauses to which a buyer must agree:
- The identity of the business and the seller, as well as all information provided by the broker and seller (including the fact that the business may be for sale) are deemed CONFIDENTIAL. This information is not to be disclosed to anyone, except the buyer’s legal and accounting advisors, who are bound to confidentiality by their professional code of ethics.
- Acknowledgement that any breach or threatened breach of the confidentiality, directly or indirectly, shall be considered irreparably harmful to Broker and the Seller, and that all legal remedies will be pursued.
- Agreement not to contact the Seller directly about the sale, nor anyone associated with the Seller, including employees, suppliers, competitors, or customers.
Financial ability to consummate a transaction. To further protect the seller’s interests, the prospective buyer should provide evidence of their financial ability to fund such an acquisition. This is an important element of the broker’s vetting process and limits the flow of confidential information to only viable prospective buyers. Likewise, the broker pledges to keep the prospective buyer’s information confidential.
Buyers and brokers need to respect the significance of protecting the value and ongoing operations of the business for sale. In Metro’s experience, most serious buyers understand and abide by the rules to investigate a potential acquisition. They understand the mutual exchange of sharing their qualifications in order to be entrusted with the seller’s sensitive information. However, some buyers do not want to provide the requested financial highlights. They may simply refuse to cooperate or offer excuses such as “I won’t reveal my financial information until I see if the business is what I’m looking for,” or “I have plenty of money and I don’t need to prove it to you!” The argument that really bothers me is “other brokers don’t require my financials!”
Unwillingness to provide basic financial information to the business broker typically signals one of these red flags:
- Not a serious buyer- just kicking tires
- A competitor of the seller fishing for proprietary information
- A self-important bully
The statement that “other brokers don’t require financials!” is a bullying tactic for the buyer to get what they want while not playing by the rules that apply to everyone else. This attitude also indicates someone is not suited to be a business owner – anyone hoping to finance the purchase of a business will be required to reveal MUCH more specific financial documentation during the process.
If there are brokers who ARE distributing sellers’ confidential information without fully vetting prospective buyers, those brokers need to reexamine their responsibility or get out of the profession. Any sellers represented by brokers who do not follow the rules should be aware that their company’s sensitive information is in the market for all to see.
Professional business brokers follow established ethical standards to protect the seller– which ultimately protects the buyer, too, by preserving long-term business value.
Dave Driscoll is president of Metro Business Advisors, a mergers & acquisitions, valuation and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600. www.MetroBusinessAdvisors.com