I run a small manufacturing outfit and we're finally listing. Broker keeps pushing me to do tours with anyone who breathes, but I've been burned before by tire-kickers who waste half a day and never had two nickels to rub together. I want a hard proof-of-funds requirement before anyone steps foot on the shop floor. What's a reasonable way to set that up without scaring off legit buyers? Do I ask for a bank letter, a lender pre-qual, what? And how do I word it so it doesn't come off like I'm accusing everyone of being broke?
due diligence
How to set clear proof of funds requirements before scheduling tours
Bank letter stating available funds, dated within 30 days. Anything else is theater.
We required a one-page POF form plus a bank statement or lender letter before the walkthrouhg. Cut our tour count by like 70% and honestly the ones who stayed were the real ones. Nobody legit balked. The guys who threw a fit about it were exactly the guys you didn't want anyway.
Seven figures for a manufacturing business and you're worried about hurting feelings? They'll survive.
Eh, I'd push back a little on the bank letter thing. Plenty of serious buyers use an LLC or a holding entity and the money sits somewhere else, or it's a fund and they're not gonna hand you a statement for a $2M target. A signed POF from their lender or a letter from their CFO/GP is usually enough. Depends who you're marketing to.
Fair, but a letter is still a letter. We accepted a letter from the buyer's bank or an equity commitment letter. Just wanted something with a name and a number on it that wasn't a scree nshot of a Robinhood account.
Screenshot of a Robinhood account is crazy work
Also put it in the teaser or the NDA cover email, not after they've already booked a flight. Wording we used: "Tours are are scheduled after receipt of a current proof of funds or lender pre-qualification letter." Boring, factual, done.
One more thing nobody mentioned: get the POF before you send the address. We had a guy who wanted the address "just to check the neighborhood" before sending anything. Guess what he never sent.
That's not a buyer, that's a competitor doing recon.
The address point is the one that's been nagging me. We've already had two people ask for the cross streets before they'd even sign the NDA. I limke the idea of putting the requirement in the teaser itself so it's front-loaded and nobody feels ambushed. Still torn on how strict to be with funds vs entity — half our interest is from a couple of small PE shops that probably won't cough up a personal statement.
PE shops will send a letter same day if they're real. If they hem and haw about a commitment letter they're shopping you for comps.
Just don't accept "we have capital available" as a line item. Seen that one. Means nothing.