Normal for an NDA to ask your net worth, liquid assets, etc?

Question

If anyone has experience with signing an NDA for a business 
broker....this seemed strange to us, but we have only signed one other 
NDA, so maybe it's normal?

This particular NDA asks for Net Worth, Liquid Assets, Credit Score, Occupation, How Long You've Been Looking For A Business.

This seemed invasive to us for just this initial stage, (as we 
haven't even gotten any info about the business to know if we are 
interested) but perhaps this is normal. Does anyone know?

Thank you for any help anyone can provide.

Kristin

Charlie MacPherson · Answer

@Kristin Britt  I been working full time as a business broker for several months now at www.InbarGroup.com.  Our NDA doesn't ask any of those questions.  It emphasizes the need for confidentiality and specifies the penalties for a breach.

Depending on the nature of the business listed, I will call the prospective buyer for a brief interview to see if there's enough of a fit that an NDA is even warranted.

There are plenty of cases where I get queries from dreamers who are completely unqualified to buy the business, whether it's a lack of experience or a lack of funds.  They don't even get an NDA.  It sounds like the NDA you received is trying to combine the NDA with some basic screening / data collection.

I get that it seems intrusive, but I would fill it out.

At this point, you need to convince the broker that you're worth him spending his time on.  If you have a 550 credit score and liquid assets of $5,000, it doesn't make sense to present $5,000,000 deals to you, especially where it involves disclosing sensitive information.

Greg Dickerson · Answer

No that is not typical and the business broker does not need that info. The only purpose of the NDA is confidentiality and protection of the brokers interest in the transaction.

Ronald Rohde · Answer

I would just fill out whatever you feel comfortable, its all negotiation anyway.

Charlie MacPherson · Answer

@Kristin Britt  @Steve Morris Let me put a little finer point on this topic.

Confidentiality is almost always an enormous issue when selling a business.  That's why we screen interested parties before releasing confidential information or even sending an NDA.

Here are some of the toxic dominoes that can fall when confidentiality is breached:

Employees find out that the business is for sale.  Guess what they'll do.  Right - they'll start looking for another job as they don't know whether their current job is safe.  Self-preservation is a powerful motivator.

Guess where they'll go looking for a new job.  Right again - your competitors.  That's because they already have industry knowledge and can cash it in for a better wage than by going to an unrelated business.  They might even bring trade secrets and customer lists with them.

Now that your competitors know your company is on the market, guess what they'll do.  You got it.  They'll make a beeline for your customers.

And what do you think your customers will do?  They'll give your competitors a close listen.  Nobody wants to worry that a key supplier may be unstable.  It will probably cost at least some business.

Next, how about your suppliers?  Once they know that you're for sale, there's at least some chance they'll tighten your credit lines or even put you on COD - and that's probably going to come up during your buyer's due diligence.

And when will your buyer think when he discovers unfavorable credit terms with your key vendors?  It could create suspicion and may hurt the sale.

Here's an example of someone I just screened out a few days ago.  I have an aviation-related business listed at almost $5M.  I got an inquiry from a guy who is all excited about starting his own air charter business with his Icon A5 - a tiny 2-seat amphibious aircraft.  We're not only not in the same ballpark, we're not even playing the same ball game.

So no, he didn't even get an NDA, much less confidential financials.

David Bermanski · Answer

@Charlie MacPherson

I agree. I recently had this situation. The seller's broker was trying to qualify the buyer and weed out the tire kickers. I would include some information showing sufficient assets to buy the business and say you don't want to disclose your financial position at this stage. I did that and the broker was happy with that.

Steve Morris · Answer

This seemed invasive to us for just this initial stage, (as we haven't even gotten any info about the business to know if we are interested) but perhaps this is normal. Does anyone know?

It does seem invasive to ask BEFORE an offer.

However, maybe the broker is trying to keep the lid on it per his client (ie I don't want people to know I'm selling out) or maybe the broker doesn't have control and is trying to keep things on the down low.

Kristin Britt · Answer

@Greg Dickerson @Charlie MacPherson thank you both for your perspectives. --Kristin

Normal for an NDA to ask your net worth, liquid assets, etc?

Most Popular Reply