Disclosure Process: Potential buyers will want quantitative information quickly in order to measure their level of interest quickly, and while the preponderance of information disclosed in the selling process will pertain to the business-for-sale, the owner/seller will also want assurances as to the legitimate intent and information indication the ample capabilities of the buyer. We recommend a progressive reciprocating disclosure process.
The first information in the disclosures process is that input into and analyzed in the valuation process, typically including the last 3 to 5 years CA/CPA prepared fiscal year-end financial statements. It will often include monthly year-to-date internals as well and sometimes historical internals on a monthly basis. It should also include information about the marketplace trends, the customer base, suppliers, employees and other operational detail.
Disclosure 1 Business-for-Sale Ad Profile: If a detailed ad is posted on Business-Trader.com, ithe first of the disclosures, presumably, will be the information incorporated into that ad. It SHOULD NOT identify the business by name or description or by conjecture, but it should provide a summary of sales and earnings history, the sale price and a general description of the type and location of the business. … as complete as possible WITHOUT identifying the business. Be careful not to do so inadvertently.
Disclosure 2 Business-Wanted Ad Profile: If an interested buyer has a business-wanted ad on Business-Trader.com, and would like to know more about a Business-for-Sale, disclosure 2 should be as simple as responding to the business-for-sale contact and pointing the seller to that business-wanted ad, and asking seller for additional information. If the buyer does not have a business-wanted ad, then we suggest the interested party simply tell the business-for-sale contact something about himself/herself, not necessarily identify himself/herself but disclose something about his/her business background and ability to pay, his/her willingness to enter into a confidentiality agreement and a make a request additional information.
Disclosure 3 Introductory Profile: In order to be prepared in advance to respond to such request for additional information, an Introductory Profile should be prepared in advance and be ready for release. The Introductory Profile should again NOT IDENTIFY the business but it should provide a summary of sales and earnings history, the sale price and a general description of the type and location of the business. It might not be much different from the Ad Profile, except it should also include a confidentiality agreement to be executed by any potential buyer requesting additional information.
Disclosure 4 Buyer’s Confidentiality Agreement: In order to obtain additional information, the buyer should first be required to complete and execute the Confidentiality Agreement provided within the Introductory Profile and return/submit the signed confidentiality agreement.
Disclosure 5 Financial Profile: Once again, a NON-IDENTIFIED Financial Profile should be prepared and ready in order to be able provide an interested buyer, after receiving buyer’s executing a confidentiality agreement, a more complete disclosure of financials that outlines the basis on which the business has been valued and priced, and that should otherwise expand on the general descriptions of the business.
Disclosure 6 Buyer’s Financial and Background Disclosure: In order to obtain additional information, the buyer’s disclosure should now be the next in order. If the buyer has a business-wanted ad on Business-Trader.com, disclosures may have already been made available to the seller within such business-wanted ad. Otherwise, buyer’s disclosure should be something similar, with a non identified net worth statement indicating ability to pay and a general business criteria and background description.
Disclosure 7 Business Profile: There may sometimes be a final Business Profile package that may or that still may NOT identify the business by name or definition. In such case, the Business Profile should provide the most complete disclosure of current and historical financials, assumptions with respect to sustainability of revenues, earnings, cash flow, and a written explanation of company history; current ownership; reasons for selling; in general terms it should describe business operations, the company’s marketplace and customer base, its suppliers, competition, business premises, employees, employee and owner compensation, etc.
Other times, final disclosure may simply be Financial Statements and/or various other specifics requested by the buyer, such as cash flow reports, accounts receivable and accounts payable reports etc. Seller’s will often be reluctant (and reasonably so) to disclosing any reports identifying vendors or customers or employees, in which case we recommend those be withheld until the due diligence steps; Disclosure 10 below, and scheduled toward the end of the due diligence process.
Disclosure 8 Introduction and Tour of Facilities: Thereafter, if interest continues and if the parties agree to be identified and introduced each to the other, there will typically be a meeting between the two, which will often coincide with or be followed by a tour of business facilities, questions and answer between the parties and the request for specific information that may not have been adequately addressed in the earlier disclosures.
Disclosure 9 Offer to Purchase: Finally, should buyer’s interests ultimately lead to an Offer to Purchase acceptable to the seller, such Offer to Purchase should include a ‘subject to due diligence clause’ whereby buyer and seller will each grant the other all necessary access and time to confirm the respective representations or disclosures of the parties theretofore.
Disclosure 10 Due Diligence Materials: should include controlled and scheduled, but open access to all necessary books, records, operations and other relevant information of the business that may be required to satisfy buyer that business is in deed what has been represented and an otherwise good fit, and should include as well, such access to buyer’s confidential materials as may be required to satisfy seller about the Buyer’s intent and capabilities, financial and otherwise.
And that’s it. At the close of a satisfactory due diligence process; by both parties, the next and final step should be the Close of Sale.