I recently took on an acquisition client to help them locate and purchase a business here in Northern California. Over several months we looked at a dozen or so businesses offered by business brokers. What an eye-opener it was seeing how other brokers present information to prospective buyers! I certainly knew that prior to signing a non-disclosure agreement (NDA); one should only expect to see a 1-2 page blind executive summary with general information about the company offered. But after signing an NDA, I was expecting to see enough detail to help my buyer client evaluate the offering and decide to proceed or just move on.
What followed in many cases was little more than the initial one-page summary and raw financial statements. I was astonished that most business brokers did not prepare an informative Confidential Business Review (CBR) package, and to my dismay, led my client and me down the path to “wasted time and no deal.” In my client’s case, basic material facts about three businesses were learned during due diligence; after reaching an agreement on terms. These facts were clearly known to the sellers, and known or knowable to the sellers’ brokers, and simply withheld. What an incredible waste of everyone’s time and money.
In my opinion, when brokers offer a business to an open market of buyers, it is essential to do a reasonable amount of pre-offering due diligence and provide detailed information to serious buyers early on. First of all it is the ethical thing to do. Second, in my opinion, it is part of a sell-side broker’s job. Third, from a sales psychology perspective, it is easier to overcome negative aspects while an inquiry is fresh and enthusiasm is highest. And for several other reasons that I may cover in a future blog, it is in the seller’s best interest. Finally, it avoids wasting valuable time for everyone involved, and I mean everyone.
At any given time, there are many businesses for sale. When a business broker asks a prospective acquirer to sign an NDA (and complete a financial qualification questionnaire in our case), the prospect deserves information to make an educated decision to extend an offer to purchase (after meeting the owner) or move on to the next opportunity. What a time saver!!
Typical CBR Table of Contents
- Company History
- Ownership, Owner’s objectives
- Products and Services
- Customer Base
- Employees & Independent Contractors
- Management & Key Individuals
- Tangible Assets
- Intangible Assets
- Facilities and Lease Terms
- Systems & Technology
- Sales & Marketing
- Strengths, Weaknesses, Opportunities and Threats
- Financial history, normalized*
- Financial forecast, when appropriate
* 3-5 years historical financial statements with appropriate normalization adjustments. A balance sheet and analyses of cash flows, seasonality and working capital history are often included.
The goal of a CBR is to present 80-90% of the information buyers need to size up a business and decide whether or not to proceed. In this business broker’s opinion, it is impossible to run an effective selling process without it. This is one of the reasons that Exit Strategies’ success rate is more than double the industry average.
If we can provide additional information, or advice on your situation, please don’t hesitate to call us.