Buyer Documentation, Non-Disclosure Agreements and Financial Statements

Buying a Business…What you should know.
July 4, 2018
The Confidential Memorandum; A Brokers Tool for Marketing
July 4, 2018
Show all

Buyer Documentation, Non-Disclosure Agreements and Financial Statements

“Buyer Documentation:  Non-Disclosure Agreements and Personal Financial Statements”


Hello, on behalf of Florida Business Exchange, I would like to welcome you to “Buyer Documentation:  Non-Disclosure Agreements and Personal Financial Statements.”  This is one in a series of videos from Florida Business Exchange that cover the basic steps you will encounter in buying a business.


The Florida Business Exchange Team is one of the largest business and commercial brokerage firms in Florida with over 25 intermediaries statewide.  We have over 100 years of combined experience in business sales and consulting resulting in transactions worth millions of dollars annually. We represent a diverse number of qualified businesses for sale in many different fields.  Our team is highly trained to assist buyers in finding the right business to fit needs and expertise, guide them through the buying process, and effectively and efficiently assist sellers in transferring their business to a new owner.  Our objectives are for you to be completely happy and successful.


Before a business owner will be willing to share intimate details about their business, such as financial statements, a company history, business name and address, the seller will naturally expect you to share similar details about you or your buying group.  Equivalently, a seller will want to know a bit about your financial status and your business experience in addition to your name and address.  However, before any information is shared, the first order of business is to ensure confidentiality.


Confidentiality is critical to the successful transfer of a business.  It is important to maintain confidentiality both before and often after the sale.  Unless the business is inoperative, there is little to gain by letting customers and employees know a business is for sale. Customers may wonder if the seller is skimping on products and services to make the business look better financially. Employees may worry about their future if they know the business is for sale and start looking for a new job.  Suppliers who know a business is for sale are often concerned with their receivables.  They may be concerned about default and begin demanding cash on delivery impacting the seller’s cash flow.  Competitors will use a sale to their advantage before and after the sale by capitalizing on customers fear of change. For all these reasons sellers will require any prospective buyer to sign a non-disclosure agreement.


When you first inquire about a specific business or businesses, your FBX intermediary will give you a Business Brokers of Florida, or BBF, standard non-disclosure agreement, or NDA, to sign.  The NDA:

  1. Identifies the business broker who introduced you to the business.
  2. Explains your responsibilities in handling confidential documents and information.
  3. Clarifies the source of the information pertaining to the business and recommends the buyer seek the advice of an attorney and CPA in evaluating the opportunity.
  4. Explains your responsibility for paying a commission if you share information regarding the sale to a third-party who purchases the business without broker assistance.
  5. Explains the length of time after signature where commissions are due to the broker for a successful acquisition.
  6. Assures the signer is not a competitor of the business acting solely to obtain information about the business to obtain competitive advantage.


Once the NDA has been signed and returned, the business intermediary will often provide a one-page Business Listing Information sheet, or BLI.  The BLI provides a high-level overview of the business without providing the name and address.  This high-level interview includes:

  1. The business price, down payment, sales and owner benefit.
  2. A brief four-line overview of the business.
  3. The reason for sale.
  4. The general location.
  5. The number of years in business, employee profile and operating hours.
  6. The non-compete agreement and training timeframe offered in the sale.
  7. Skills and licenses required.
  8. High-level financials for the past three years.
  9. Key items included or not included in the sale.
  10. Lease terms if applicable.
  11. And expected structure of the sale.


After signing a NDA, many buyers mistakenly think this entitles them to receive intimate details about a business.  This is simply not true.  When a seller is in the process of selling their business, it is often one more task they must add to an already busy day.  They rely on their intermediary to qualify each buyer by verifying their financial capability and relevant experience.  They do not want their focus shifted from running their business to showing a business to an unqualified buyer.  And, it is also in the best interest of the buyer to be qualified.  The intermediary and seller are often more experienced at judging how much capital will be required to acquire and operate the business and what skill and experience translate to success.  Do you really want to waste your time looking at a business you are not qualified to acquire or operate?


To qualify a buyer financially, an intermediary will ask for some form of financial information verifying you have the liquidity to acquire and operate the business.  The least obtrusive means of verification is a letter from a fiduciary — your CPA, Banker or Financial Planner, stating they reviewed the requirements to acquire the business, reviewed your financial status, and verify you are financially capable of acquiring and operating the business.  The second least obtrusive means of verification is the Personal Financial Statement, or PFS.  The PFS is your personal balance sheet listing liquid and non-liquid assets, liabilities, and net worth.  The most obtrusive means of verification are bank statements and are used less frequently.  Many intermediaries request this information early in the process as a test to see how prepared you are to buy a business.  Experience has shown buyers who have not reviewed and prepared their own personal financials are often not serious about buying a business.


The final piece of information you may be asked to provide is a summary of experience.    Many businesses require specific educational achievement or special licensing for ownership.  Other businesses require a significant amount of knowledge or experience to successfully operate.  When this is the case, your intermediary may be required by the seller to qualify each buyer’s relevant experience.  This can be as structured as a resume, or as unstructured as a verbal discussion of your business experience.


Once you have signed a NDA, provided verification of your financial viability, and demonstrated your skills and experience are a match, the intermediary will be happy to provide additional information regarding the business.  For larger business transactions, this information usually includes a confidential memorandum, detailed financial statements and the name and address of the business.  In summary, detailed information on you the buyer in exchange for detailed information on the business — fair trade.


Again. On behalf of Florida Business Exchange, I would like to thank you for listening.  If you have any questions regarding buying a business, please do not hesitate to contact your Florida Business Exchange intermediary for a complimentary consultation. I wish you the best of luck in pursuing your business acquisition dreams, and having our team of professionals helping you through the process.

Leave a Reply

Your email address will not be published. Required fields are marked *