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Uncooperative Brokers, Owners: Getting Tax Returns & Details Before Submitting An Offer

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Comments & Replies: 9     Views: 3238     Posted By: Peter Siegel MBA  Peter Siegel MBA: BizBen Founder, ProBuy/ProSell Program Director



Topics: Business Brokerage, Buying A Business     Tags: business brokers, buying a business, selling a business


Contributor: Business Broker, SF Bay Area

The Confidential Business Profile (CBR) that I prepare includes a Financial Summary. The Financial Summary shows the information from the business tax returns for the prior three years and year-to-date information. Buyers who have signed an NDA and completed a Buyer Profile, and are appropriate for the business would receive this. We would also set up a meeting with the Seller. So we ask buyers to review the CBR and after meeting the Seller make an offer with a deposit. When you are making the offer you saying that if the bottom line number is accurate then I am willing to buy it for this price.

The offer is contingent on due diligence where you get to verify whether the financials shown in the CBR are accurate. This verification will go lot further than just looking at tax returns and will include looking at a lot of supporting documents. In addition, during the due diligence you will also verify a lot of other things, e.g. lease amounts, any special customer or vendor arrangements, distributor/franchise requirements, license requirements, etc. If you are satisfied with due diligence you go forward. If not you back out and get your deposit back.

This process takes it step at a time with information being disseminated in a timely manner. Handing out Business Tax Returns to every buyer who has signed an NDA would not make sense! Even in cases where the financial summary is not provided, Sellers want buyer to commit that if the bottom line number is accurate, buyer is willing to purchase the business on the specified terms.

Once that agreement is in place, then Seller is extremely motivated to provide all information necessary to satisfy the buyer that the numbers are accurate so that the deal will go through.


I understand your frustration. I have been a business broker for 14 years and I used to do the same. While it was a very good way to weed out all the less serious buyers, it created lot more hassles and problems when things didn’t turn out right and we had to cancel escrow. If you had a chance to read the purchase agreement, you would understand that it was written in a way that when offer is accepted, escrow is to open and Seller is given time to disclose his business information and Buyer has certain time frame to review/inspect and approve or disapprove them.

I like to give my Buyers much information as possible prior to opening escrow as long as the Seller is comfortable with it. This way, most of my transactions have a successful close. I’m pretty sure you will be alright either way you go with the guidance of a good business broker.


Your question pertaining to most brokers insistence of an “Asset Purchase Agreement” prior to release of tax returns and other relevant documentation understandably appears backwards from a Buyer’s prospective, however, please note, that most brokers(we do) provide a detailed “Business Fact Sheet” indicating income, expenses and the net profitability of the business represented. Buyers based on these representations of the Seller presents an offer with a contingency of verification of “Books & Records” in an allotted due diligence period.

As you can well imagine, due diligence is a tedious and a time consuming process, therefore, an experienced broker requests an offer making certain that there is a meeting of the minds between to two principals as to the total consideration and terms of the acquisition prior to expending time and resources towards due diligence.

As a matter of practice, our business brokerage does NOT open escrow until books and records have been approved and said contingency removed.

Contributor: Transactional Attorney

I am not a broker, but in my experience, when a broker insists on a purchase agreement and opening escrow before providing any essential documents they're typically trying to weed out any buyers who are not serious, and get a buyer who does seem serious into a position where they're less likely to continue looking at other businesses. A relatively high percentage of buyers, even those who sign NDAs and provide Personal Financial Statements, don't end up going through a given transaction. From the broker's perspective they're saving their time and their client's by only dealing with buyers who are willing to make an initial offer.

But from the buyer's perspective it can be much like being asked to make an offer on a house without being able to look inside. It's frustrating to be asked to make an offer on something that may or may not be what it looks like from the outside. If a broker is too aggressive, their client may lose serious buyers who don't appreciate being forced into an agreement before they truly know what they're agreeing to.

Having said that, there can be some advantages to the buyer in starting with a purchase agreement before going any further. In one deal I did for a business I own personally, I purposely began with a purchase agreement, and put the key terms and majority of the representations and warranties I wanted the seller to agree to in the deal at the start. I was concerned that the seller might balk at some of my "deal-breaker" provisions did not want to waste a substantial amount of time, effort, and money on due diligence if they did. The seller pushed back on some terms, but because we started early I had more leverage to push back myself. At the end, we were able to come to a reasonable compromise and the deal was a success for both of us.

If you do go this route it's crucial to allow sufficient time for due diligence, make your contingencies crystal clear, and to put everything into the agreement up front that you can. I would not advise taking this approach if you're using a standard CAR agreement--there are too many buyer-favorable provisions that should be included but are not in the CAR purchase agreement.


Good question. It is one I hear often. It is hard to understand when you are genuinely looking to purchase a business. You should never expect to go too far into a transaction without clarity and it would seem reasonable for sellers and their agents to put their best foot forward and show you as much as possible to prove their point.

However, in business sales it is common to get calls from competitors of the business, people considering getting into the business elsewhere but really have no intention of purchasing this one. Most business owners are also very independent and generally secretive. They need to be protected from insincere or unqualified lookers and, also those who might use the information to do the harm to the business. Additionally, they do not wish to have their time wasted or reveal their most secretive information to anyone until they have proven their sincerity.

It is for this reason that information about you is required. It is necessary to establish your credibility as a buyer. It might be advisable to have these items at your ready as you continue your search. You might also want the agent and broker to sign an NDA protecting your information.

One word of caution, if you are going to sign something read it carefully. You do not want to agree to more than required as it pertains to the business you are interested. You might also consider finding yourself a Buyers Agent that you are comfortable with. This can also save you frustration, as it might be easier to get the preliminary information quicker. Your own agent can also guide you in your search.


Yes, it can be frustrating to a buyer, but the process makes sense. Sellers have the burden of maintaining their business while at the same time selling their business--trying to keep it confidential and avoiding disruption of normal operations.

With the NDA, buyers will usually receive a detailed description of the business, details of the lease if applicable, recast P&Ls for the past two to three years showing the owner's true Seller's Discretionary Earnings or Seller's Discretionary Cashflow ("SDE" or "SDC"), a report showing monthly sales figures for the same time period, and an itemized list of furniture, fixtures, and equipment ("FFE"). The Buyer will usually have the opportunity to meet the seller and to visit the facility. This has taken a significant investment of time and effort by the broker and by the business owner for each prospective buyer--and there may be several at any one time.

The prospective buyer now has enough information to determine a reasonable offer for the business, everything else after that is for verification, not for valuation. This additional information -- tax returns, payroll records, customer lists, supplier records, inventory details, etc. -- is highly confidential and involves time and attention by the business owner. And, before the seller and broker invest more time with the buyer, the buyer needs to demonstrate seriousness about the transaction by making an offer along with a deposit check (usually 10%) payable to the escrow agent. This also demonstrates that the buyer actually has financial liquidity. After negotiating the offer, the buyer and seller reach agreement on price and terms--and there is a contract. At that time, the deposit check is deposited with the escrow agent.

But, the buyer should not be concerned; he just has to be sure that the purchase agreement includes a due diligence clause allowing him to cancel the contract for any reason or for no reason during the due diligence period (typically, ten days). Then, the prospective buyer gets to look at and ask the seller about everything; the buyer can have his CPA, attorney, and other advisors check the financials, tax returns, bank statements, equipment, personnel records, contracts, lease (and lease assignability), and anything else. Obviously, this is a big intrusion on the seller's business, and not one that makes sense to allow for every "tire-kicker"; that's the reason for the commitment shown by the offer and deposit. To be clear, once the contract is signed, the seller has an absolute obligation to sell; but, the buyer only has a contingent obligation to buy--and, the buyer controls the contingency. Before the due diligence period ends, the buyer can cancel the contract and receive a refund of every penny from the escrow agent.

Contributor: Business Broker - Preschool Specialist

I would dispute the statement that most brokers do business this way. I agree with you, it is backwards and could be a huge waste of time. Perhaps in some markets where businesses are in great demand the brokers can make the rules this way.

It seems more than a little coercive, however, if you are seriously interested in a business that is offered by a broker that insists on operating this way you are probably stuck. Are they asking for a deposit with the purchase offer? If they are, and they are going to be cashing your check before showing you the financials, I would be cautious.

I have seen the strangest things happen with deposits, so make sure that the purchase agreement has adequate contingencies allowing you to easily cancel the contract with no penalties against your deposit if things aren't to your liking, once you have had the chance to review the docs. Of course, you could try to set up the deal so that you give no deposit before you have fulfilled those contingencies.

And don't enter into a contract unless there is a third party handling the funds and recordings, etc., like an escrow company or an attorney. One more thought, if the listing broker will allow you to be represented by your own broker in making an offer, by all means do so. The terms might soften with a professional person negotiating for you.

I hope this helps.


That is a very reasonable question. I was a business broker for 21 years and never operated on the principle of locking a buyer up with a purchase agreement before the buyer even has a chance to evaluate the business.

First lets recognize that fact that not all brokers require a purchase agreement before providing any information. These brokers claim that the seller needs a commitment from a buyer before opening up their confidential information. This is not the reason. The real reason is that the seller or his broker feels that if the buyer is in escrow it will be easier to move him through the due diligence process without the buyer doing a proper job.

Since I retired from being a business broker, I spend full time helping buyers with their due diligence. I have found that if you refuse to play the game, of providing an offer before you even know if you are interested the broker will back down on demanding a purchase agreement and deposit check. If they won’t, just walk. I have found that you will not be missing the deal of the century. Sellers with great books that can be documented are very willing to show at least full P & L for the last few year and year to date of this year. It is reasonable if they hold back the tax returns, until after an offer is signed, but not the actual financial statements.

Conclusion: It is not reasonable to ask for an offer before at least some presentation of full financial reports. Remember the Golden Rule, not the one you learned in church but in school. “The man with the gold rules.” As long as you have the money, you are in control, and if you feel you are not, then the deal is not for you.

Contributor: Business Broker - Lliquor Stores, Markets, Hotels, N CA

Sometimes the Seller may request the Broker to have a contract contingent upon verification of all business records, before showing tax returns and financial statements. However, as a Buyer if you have provided information such as NDA, Buyer Profile and Personal Financial Statement, then there is no reason why the Seller should ask for a contract before sharing business information; because you have already proven your seriousness and interest for the business.


  Helpful Resources To Assist In Selling And Buying California Businesses
Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Joe Sandbank, Esq. - Legal Services

I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.

Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Brad Steinberg, Broker - Laundromat Specialists

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.


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