Is asking for "Proof of Funds" Normal?

searcher profile

June 05, 2022

by a searcher from Anderson University in Raleigh, NC, USA

It is NOT normal for truly experienced business brokers. Selling a business is not that black and white. This hurts the seller, who will most likely never sell their business.

The broker who asks for "proof of funds" is just trying to cash out. In most of their NDA's they state that they have not even verified the business data. When they ask me for "proof of funds", I ask for "Proof of Financial Data."

Really, I just move on to the next acquisition target. Remember, there are plenty of small businesses you can ethically acquire without a broker and let the seller keep that broker fee they would have paid.

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commentor profile
Reply by an intermediary
from Boise State University in 800 W Main St, Boise, ID 83702, USA
An experienced business broker will ask about a buyer's qualifications to buy, which includes asking about how much the buyer has to invest and the source of those funds. Your comment about brokers not verifying the financial data is misleading. Yes, business brokers do not "audit or verify" the financial data provided to them because that is not their role in the process. Does a broker analyze the financial data and present it in the marketing material, i.e the CIM? Yes. However, the verification of the data is done by the buyer, the buyer's lender, or accountant doing a quality of earnings report during due diligence. This is normal A good broker doesn't want to waste time with an unqualified buyer who doesn't have any money or enough money to qualify to buy the business. Asking about a buyer's funds has nothing to do with the broker "cashing out". The buyer prospect must be willing to provide enough data to the broker to prove that you are qualified and serious. If you don't, then you won't get very far in the process. Sellers hire a professional broker to assist them because for most of them, this is the first and only time they will have sold a business. Selling a business without professional guidance generally means the sellers are victims of not knowing what they don't know which can lead to a poor outcome for the seller.
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Reply by an intermediary
from New York University in Menlo Park, CA, USA
Why the push back to a 'proof of funds' request? The broker is qualifying the buyer, which is one of the reasons the seller chose to work with an intermediary. The sellers don't want to waste time with people who aren't serious and can't get a deal done.

Real buyers gladly share information regarding their financial ability to get a deal done.

Real buyers clearly articulate why they are interested in a specific opportunity.

Real buyers share their email and telephone number.

Real buyers share their company website and LinkedIn profile.

If I sense you are trying to evaluate my client through a one-way mirror, I won't waste my time with you and certainly won't waste my client's time with an introduction.

Just like buyers should be asking "Why are you selling?", sellers should be asking "Who are you and why are you interested?"
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