Disclosure Processes

To satisfy the legitimate requirements of both parties, carefully but quickly, we suggest a very deliberate step-by-step preparation and disclosure process.

We’ve found most business buyers to be deliberate and purposeful. Once aware of an acquisition opportunity of potential interest, a buyer will soon be asking for factual and quantitative information on which to measure a continuing level of interest, or lack thereof, and as long as interest continues, will continue to ask for information until their questions have been satisfied.

On the other hand, we’ve found business owners to be generally cautious and maybe reluctant. Most business owners don’t naturally want to disclose confidential information to anyone, let alone to a stranger, and although there is a logical recognition that disclosure will be necessary in the process of selling the business, there are often conflicted impulses to contend with.

While the preponderance of confidential information to be disclosed in the buy/sell process will be that pertaining to the business-for-sale, there is other. The owner/seller will want information pertaining to the buyer, including assurances as to the legitimate intent and ample capabilities of the buyer, and those questions must be equally satisfied.

To satisfy the legitimate requirements of both parties, carefully but quickly, we suggest a very deliberate step-by-step preparation and disclosure process.

Before the buyer/seller disclosure process begins, and in fact, before any buyer is made aware of the acquisition opportunity, we suggest that the first disclosure of information be to the person(s) conducting the business valuation and preparing materials for disclosure.

In our experience, such information will typically include last 3 to 6 years financial statements prepared by the companies CA/CPA, plus monthly year-to-date internal income statements and balance sheets and sometimes it may also include historical internals on a monthly basis for some period. It should also include information about the marketplace trends, customer base, suppliers, employees and other operational detail.

Of course all businesses are unique and as the valuator delves into the information, questions will arise and answers will be sought, until the valuation and preparation process is complete.

Thereafter, we recommend the following schedule of disclosures.
Disclosure 1: If an ad intended to attract a buyer is to be posted on a business-for-sale website, or elsewhere, the first of the disclosures, presumably, will be the disclosure of information incorporated into such advertisement. That information should NOT be such that it identifies the business by name or by description, but should be such that provides a realistic but brief summary of sales and earnings and a general description of the type and location of the business.

See: sample business-for-sale ad

Disclosure 2: An Introductory Profile is the first disclosure to be specifically released to an inquiring buyer. Once again, this disclosure should NOT identify the business by name or description or by any other means but should provide a realistic summary of sales and earnings history and a general description of the type and location of the business, and be accompanied by a confidentiality agreement for execution by the potential buyer.

See: sample profile RPT54-IntroProfile

Disclosure 3: In order to obtain additional information, the buyer should then be required to complete, execute and return/submit a confidentiality agreement.

Disclosure 4: The Financial Profile should NOT identify the business but should provide a more complete disclosure of financials and outline the basis on which the business has been valued and priced, and should otherwise expand on the general business description.

See: sample profile RPT56-FinProfile

Disclosure 5: In order to obtain additional information, the buyer’s disclosure should now be the next in order, including buyer’s financial or net worth statement and resume and/or other background information, depending perhaps on whether the buyer is a business/corporation or an individual. The identity of the provider of such information should be held in confidence by the broker until such time as both buyer and seller agree to be identified one to the other.

See: sample business-wanted ad

Disclosure 6: The Business Profile may still NOT identify the business by name or definition, but 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 in a non-identified manner only, its customer base, its suppliers, competition, business premises, employees, employee and owner compensation, etc.

See: sample profile RPT58-BizProfile

Disclosure 7: 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 8: Finally, should buyer’s interests ultimately lead to making an Offer to Purchase that is 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 8 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 the business is indeed what has been represented and is 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.

See: sample due diligence
See: sample offer to purchase

7 Selling Steps

About Us

davidsonashe was founded in 1996 as an affiliate member of the Business Brokers Network of more than 350 affiliated business intermediaries; business brokerage and consulting firms located across the United States and Canada. Locally, we have offices in Langley, BC and Lynden, WA and have been intermediaries instrumental in the sale of companies in northwest Washington and the British Columbia lower mainland since 1996.