In today's article, 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 on their own.
The first question came from a prospective buyer by the name of David in Sparks who was considering buying a business directly from a seller. David is uncomfortable because the seller will not release any of the 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, confidential information, isn't he really asking the seller to do the same exact thing?
The seller is simply trying to verify that David has the necessary financial strength to complete the transaction he is representing. 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 regarding any information that is exchanged.
I also suggested that when he provides the seller with his personal financial statement, he also includes his resume and credit report. If both documents are strong, that will give the seller more confidence for proceeding with the transaction, especially if there is seller financing involved.
The second question came from Steven in Reno who was 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 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 employee, 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 an employee, key or otherwise, when they hear the business is being sold. There is a fear of a new boss, anxiety over new procedures, concerns about job responsibilities, trepidation over job security, etc. With all these emotions and unanswered questions, employees sometimes will fill a 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 employees frame of mind before allowing this to happen.