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When to Release Confidential Information to a Buyer
What documents should I show to buyers before receiving an offer?
So you are talking with several interested buyers and a few of them asked you for tax returns, bank statements and some other sensitive information. What should you do? How should you handle this situation? Should you show these documents without having an offer in hand?
What guidelines should I follow when dealing with buyers and deciding what I should show them?
Before receiving an offer, you should be cautious with what you show to buyers. Certainly be helpful and engage with the buyers but do not give them everything they ask for. At some point, you should politely and tactfully ask them to present you with an offer.
Here is what is commonly shown to buyers before receiving an offer:
- Business Summary
- Profit and Loss Statements (past years and year-to-date)
- Balance Sheet
- Lease Summary or Abstract (not the whole lease)
- Equipment List
- Sales literature, brochures, etc
These items are usually released after an offer is made:
- Customer Lists
- Tax Returns
- Bank Statements
- Invoices and receipts
- Full copy of the lease
- QuickBooks file or full Financial Statements (General Ledger)
The buyer says he isn’t going to move forward without first seeing the tax returns and bank statements. What should I do?
Politely explain that all buyers say that, and if you complied with every buyer's request, then a dozen or so copies of your tax returns and bank statements would be floating all over town.
The buyer is going to walk, what should I do?
Call him on his bluff (Tell him no.) and see if he walks. If he does, then call him back and tell him you thought about his situation and you completely understand, you talked to your wife, you prayed to God, you asked your priest, you have seen the light, blah, blah blah ... If your records are good, then I suggest setting up a meeting with the buyer in person at your place of business. Have the documents they requested lying on your table. Let the buyer spot-check some of the documents for a short period of time. Give them confidence that you have the backup material to satisfy their due diligence requirements. Do not give them copies to take home. After they are done, press them for an offer.
This type of buyer could just be seeking reassurance that they are making a good decision. Buyers typically do this by trying to acquire more information. More information will not make their fears go away. You have to challenge them and ask them for an offer.
Is there a better way to explain this process to the buyer?
Yes. Explain to them that you are making representations. These representations will be verified during due diligence. Give them verbal reassurance in the quality of your backup information. Explain to the buyer that their earnest money deposit will be held by a qualified and licensed escrow agent.