Key Business Buyer Issues

I am not certain why the subject of buyers not wanting to disclose personal information to sellers or brokers comes up so frequently. To me, it is one of those “no-brainer” issues. Often times, I see blogs and postings whereby a prospective buyer is questioning why a seller has asked for a buyer’s financials.

The buyer’s rationale is generally that if the seller knows his financials, their negotiating leverage will be diminished and the seller should not have any need to know the buyer’s financial situation at this early stage of discussions.

Although I respect the buyer’s position, their perception is completely skewed.

A buyer who can demonstrate qualified financial resources actually bolsters their position with the seller on many fronts.

Most importantly, it demonstrates that they can in fact execute the transaction.

With the market being flooded with lookers versus buyers, financial strength is a massive asset for the buyer.

Leverage-wise, it makes no difference. Ultimately, a buyer will offer the price and terms they are willing to pay for the business; regardless of their net worth. Even if a seller knows the buyer has more capital to invest, it makes no difference nor should it influence an offer – end of story. If the seller believes that a buyer will pay more for a business simply because a buyer can, they are in for a huge surprise.

Additionally,

sellers will gravitate towards buyers who they know have been successful in the past and have the financial statement to validate this experience.

This is especially true if the seller is going to consider financing part of the transaction or in situations where a buyer may only be acquiring part of the business. It is also a major consideration in deals that include an earnout component.

The seller has to be confident the buyer has the skills to operate the business and prior successes are often most clearly identified by the buyer’s net worth.

It is common for inexperienced prospective business buyers to want to disclose as little as possible to a seller.

However, this philosophy simply does not make sense given all of the reasons stated above. Furthermore, if a buyer expects a seller to disclose confidential financial information and sensitive details about the business, shouldn’t they be willing to do the same thing? Of course they should!

Remember to visit our website for up-to-date helpful articles and valuable resources to help you buy a good business at a great price.

Have a great week.

Richard Parker

Diomo.com

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