How in-depth should buyer profile be in first contact with broker?

February 10, 2023

by a searcher from University of Michigan - Ann Arbor in New York, NY, USA

I recently inquired with a broker about a potential deal. They sent back an NDA with a buyer profile document that I'm meant to fill out. It asks for detailed financials such as cash/investments/liabilities/net worth/credit score/etc. Is this something I should be comfortable completing this early in the process? Thanks!

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Reply by a professional
from University of Southern California in North Palm Beach, FL, USA

I appreciate the call out, ^redacted‌. My answer: Yes to your Q, ^redacted‌Thanks to your buyer competition, you’ll do it or you won’t see as much opportunity. The key is doing it right; what and how you disclose, upfront and then later. Like peeling an onion. Here’s something to consider, which I don’t see other commenters covering as much: How to present your financial statement. Some brokers want you to complete a personal financial statement before meeting with the sellers of businesses. Understand their need to qualify prospective buyers but how much information should you provide at this stage? Savvy buyers know how to present their personal financial capability. If you show too much, you increase the probability that you’ll pay too much and make a larger than necessary down payment. If you reveal too little, you won’t get a chance to evaluate the company. Here’s my advice, which might change on the basis of a particular client’s situation: • Don’t reveal your financial situation without first getting a signed NDA from anyone who will see your financial statement. • Don’t show your entire net worth. • Don’t, upfront, give sellers and brokers your complete financial statement. Disclose all your liabilities and then make sure the amount of your assets, which you disclose, exceeds your liabilities plus the maximum amount of down payment you are willing to make. Maybe add the reasonable amount of working capital you’ll inject into the business immediately after purchasing it. Later, to get their cooperation, you may have to show lenders and the landlord more of your net worth. If the sum you show is not equal to the seller’s expected down payment, tell the seller (assuming you have more money) that you may add more money (don’t, yet, explain from where it will come). Or you could tell the seller you intend to use creative financing. The excerpt, above, is from one of my books.

Reply by an intermediary
from The University of Michigan in Bonita Springs, FL, USA

First of all, Go Blue! BSE '86, MBA '89. We offer an online Buyer Profile which provides several options on Buyer background information including providing a LinkedIn profile or attaching a CV. Regarding financial status, I am primarily concerned with the Buyer's liquidity to do a deal. Our Buyer Profile offers an "attestation of liquidity". We also accept letters from fiduciaries or bank/brokerage statements with account numbers redacted. Most buyers just complete and sign the attestation of liquidity. I have found this to be very important in order to prioritize Buyers, especially in situations where multiple offers are presented. Sellers deserve to know if or when each Buyer will have the funds available to close the transaction. Selecting an unfunded Buyer will hold up a deal while they work to gather money from investors, lenders, etc., and may result in well-funded Buyers walking away in frustration. My recommendation is in lieu of filling out Buyer Profiles is for you to have your Buyer package including your background, interests, financials, bank pre-approval letters, etc. prepared in advance of contacting an Intermediary. Showing that level of preparedness and professionalism on your part will push you toward the head of the line.

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