September 23, 2024
If you’re considering buying a business but feel uncertain due to the unknowns, writing a contingent offer can provide the assurance you need.
The Challenge: Sellers are understandably reluctant to let just anyone review their sensitive financial records.
Imagine yourself in the seller’s position—selling a business can be a significant, emotionally charged decision. Sellers often experience the same anxiety about the future as buyers do. Once a business is listed for sale, many prospective buyers will want to inspect its private records, but not all of them are serious or capable buyers.
As a business broker, I’ve seen this issue firsthand. Some buyers, known as “tire kickers,” have no genuine intent to purchase, merely browsing without commitment. Others may be genuinely interested but lack the financial means or willingness to meet the seller’s price. In some cases, competitors might even send people to gather insider information. Sellers need to protect their sensitive data from these scenarios.
The Solution: A contingent offer to purchase the business is a win-win solution for both parties.
As the prospective buyer, you base your offer on preliminary information—such as revenue and cash flow—with a clause that makes the offer contingent upon your review of the business’s complete records.
For example: “This offer to purchase is fully contingent upon the buyer’s inspection of all books and records of the business and the buyer’s satisfaction with the information contained therein.”
This clause safeguards you, allowing you to walk away without penalty if the records don’t match the provided information. Your earnest money will be refunded if the contract is terminated. At the same time, this approach assures the seller of your seriousness, prompting them to allow access to their private records. This inspection process, known as due diligence, benefits both sides and helps facilitate a smoother transaction.
Additional Contingencies: There are other conditions you might include in your offer. If you need financing, you could add:
“This offer is fully contingent upon the buyer obtaining satisfactory financing for the purchase of the business.”
If the business operates from leased premises, you might add:
“This offer is fully contingent upon the buyer’s assumption of the existing lease or negotiating an acceptable lease with the landlord.”
Other Key Contract Provisions:
Including these provisions in your purchase agreement helps protect both parties, making the transaction more secure and structured.
