I am selling my business. A buyer replied with, “My father-in-law is the investor and has the cash. I can sign the NDA as long as you are aware that this is between me and my investor.” How should I respond to the buyer?
For small businesses, we rarely see “investor deals” happen. For this reason, it makes sense to heavily screen these deals so that you don’t waste your time. We recommend communicating directly with the investor as if they were one of the purchasers because, well, they are. Do you really think the investor is going to hand over hundreds of thousands of dollars without reviewing at least some information on your business?
The investor and the buyer should both sign your non-disclosure agreement (NDA). After all, the investor will receive confidential information on your business so they should sign the NDA as well.
Our non-disclosure agreements ask two simple questions:
- How much liquid cash do you have to invest in a business?
- What is your net worth?
If the buyer who initially contacted you does not have the liquid cash or net worth to buy your business, are you going to take their word that their investor has the funds to buy your business? If so, then any buyer would use the, “I have an investor” wildcard to avoid having to qualify themselves.
How you handle this conversation with the buyer is important and will set the buyer’s expectations for how they treat you during the remainder of the transaction. If you are passive and naïve enough to accept the buyer’s word that “they have an investor, and the investor wishes to remain private,” you can bet that the buyer will treat you as a naïve, unsophisticated business owner.
Selling a business is a complicated matter, and the balance of power is critical throughout the deal. It is important to portray yourself as an intelligent, experienced business owner throughout the process. Be sure to handle the “investor issue” tactfully and diplomatically.