Seller asking for proof of funds?

October 31, 2023

by a searcher in Seattle, WA, USA

Starting my search and have an acquisition target in mind. The seller stated they want to see our financials and proof of funds. Is this a normal ask when conducting due diligence on an acquisition target?

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Reply by an intermediary
from University of Florida in Orlando, FL, USA

Amen to my friend ^redacted‌. I agree with everything you said. Why would a seller want to reveal everything about their business to someone who does not have the funds to buy it and isn't ready. A prepared Searchfunder has a bio, resume, plan of action ready. They have been speaking with investors, or a group such as ^redacted‌ 's Pursuant Capital or ^redacted‌. But they have some sort of plan of action ready and will share that with the broker. I was in a meeting this week and the Buyer told the Seller they only want to put down 5% which they would raise, but they want the Seller to hold a 10% note on standby. The Seller selected another Buyer who they felt more comfortable with and felt that they wouldn't be over leveraged. Sellers want to sell to a Buyer who is most likely to be successful and care for their team, what they built in the community, and they don't feel they can do that often if a Buyer doesn't have any funds of their own. When we invest in deals, we do think it is important for Searchfunders to put in a portion of their own money in the deal. It doesn't need to be a lot, but something.

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

Nobody wants to waste their time with a buyer who cannot demonstrate they have the funds available to complete a transaction. For individual investors (not PEGS or FOs with track records) I offer a thrifted "Source of Funds Affidavit" with the NDA. In lieu of completing the Source of Funds Affidavit, we are willing to accept: 1. A completed personal financial statement. 2. A letter from a fiduciary, e.g., banker, CPA, financial planner, etc., stating they have looked at the deal and have verified the buyer has sufficient funds for both transacting the deal and working capital post-transaction. 3. A bank or another account statement showing the buyer has sufficient funds for transacting the deal. I recommend account numbers be redacted. The purpose of this confidential financial information is to confirm the buyer has the liquidity to complete the transaction and has enough working capital to operate the business post-closing. Buyers would be shocked at the percentage of inquires received where the buyer does not have the funds. On some deals it can be as high as 30%.

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