In today’s post, I’m going to answer a couple of questions that have recently been sent to me from people who are considering buying and selling businesses of their own. The first question came from a prospective buyer by the name of David in Sparks who is considering buying a business directly from a seller. David is uncomfortable because the seller will not release any of their financial information until they see David’s personal financial statement.
I explained to David that this is not unusual. While I understand his concerns about releasing personal and confidential information, isn’t David really asking the seller to do the exact same thing?
The seller is simply trying to verify that David has the necessary financial strength to complete the transaction as he is presenting. This is exactly what David is trying to accomplish, only in reverse. David is trying to verify that the business is making the money that the seller is representing.
With this in mind, I recommended that he have an attorney draft a reciprocal confidentiality document that will provide both him and the seller with the necessary privacy safeguards in regards to any information that is exchanged.
I also suggesting that when he provides the sellers with his personal financial statement, he also included his resume and credit report. If both of these documents are strong, that will give the seller more confidence for proceeding with the transaction.
The second question came from Steven in Reno who is thinking about selling his business. He is in the final stages of negotiating a sale and is concerned because the buyer wants to meet all the employees. Before I could answer this question, I had to call him to understand what type of business he has and his role in it. It turns out that he owns a manufacturing business, but he doesn’t spend a lot of time in the plant. Once I understood this, I felt that it may be appropriate for the buyer to meet the seller’s key employees, but certainly not all of the employees.
However, there are risks associated with allowing this meeting to happen. Typically, there can be some apprehension on the part of the employee, key or otherwise, when they hear about the business is being sold. There is a fear of a new boss, anxiety over new procedures, concern about job responsibilities, trepidation over job security, etc. With all these emotions and unanswered question, employees sometimes will feel the need to begin looking for employment elsewhere, which could negatively impact the current owner if the sale does not go through.
This is not an easy decision. The seller needs to understand their key employee’s frame of mind before allowing this to happen.