Why Confidentiality Is Important When You Sell A Small Business

You should keep the sale of your business as confidential as possible for as long as possible.

When it becomes commonly known that a business is for sale, suppliers become hesitant to extend terms and customers become afraid to enter into new agreements. Employees quite understandably begin to worry about job security and inevitably their energies are focused more on finding a new job then on their current one.

One of the keys to selling your business successfully is to continue to operate the business as effectively as if you were going to own it forever. And you can't do that with all this uncertainty among your customers, suppliers and employees.

And then there are all the ways your competition can use your impending sale against you. It can become very easy for them to start taking your customers away from you.

Before you know it, your business isn't worth as much as it used to be.

In the sections that follow we will talk in more detail about specific things you can do to protect your confidentiality while advertising, negotiating and closing the sale of your business. But for now, resolve to only share your intentions with people who can actually help you sell your business. This would include your lawyer and accountant, but not too many other people.

How a Lack of Confidentiality Can Affect the Business Buyer

In addition to the problems you encounter with employees, customers and suppliers, a lack of confidentiality can dramatically damage the buyer's perception of your business.

Buyers tend to think buying a business is like buying a house or car. The owner runs some ads, interested buyers respond, they then negotiate for a little while and in a few days or weeks the deal is closed.

Nothing could be further from the truth: Many very good businesses take a year or more to sell.

The problem is with the buyer's perception: if he knows you've been trying to sell your business for 6 months to a year, he may think there is something wrong with your company. Once the buyer has this perception in his head (it may be spoken or unspoken) it becomes almost impossible to sell for the best price.

The last thing you want to happen is for one of your suppliers, customers or competitors to tell your prospect that you have been trying to sell the business for 6-12 months but have not been able to find a buyer. Because the typical buyer doesn't understand that even the healthiest business can take a year to sell, he starts getting nervous. He asks himself, "why doesn't anybody want to buy this business?", "What am I not seeing?". Next thing you know, he's searching for some other opportunity to buy.

While negotiating, you want to have as much control as possible. If you're in a hurry to sell because your employees are getting nervous or a competitor is spreading rumors it will always cost you money.

Here Are Some Steps You Should Consider to Protect Your Confidentiality

  1. Don't tell people who can't do anything to help you. Only tell the people who can help you sell the company such as your accountant, lawyer and other advisors.
  2. Don't put your company name in any of your advertisements and be as vague as is reasonably possible when it comes to describing your location.
  3. Have every buyer sign a confidentiality agreement before giving them any detailed information.
  4. Request that along with the confidentiality agreement, the buyer complete a "Buyer Information Sheet" with some basic information about their business experience and finances. It allows you to learn a little about who you're dealing with, and just as importantly, it helps to weed out weak prospects because they will either refuse to provide the information or they will honestly tell you that they have no cash and bad credit.

What to Do if People Already Know You Are Selling

Often, when the business is very small or the owner is ill and has talked openly about retirement, the sale is common knowledge. If this is the case, you should still be concerned about confidentiality.

Your tax returns, financial statements and client lists are still confidential and incredibly important to protect. Proprietary information like manufacturing processes or recipes add tremendous value to the business the buyer is paying for. You must protect this information at all costs even if the sale is common knowledge.

Also, just because the sale isn't a secret doesn't mean prospects can just show up at your business whenever they please, or have direct contact with your employees when you are not around.

The issue of confidentiality will come again and again throughout the selling process even if you have openly announced the business is for sale.

More on the topic: Maintaining Confidentiality When Selling a Business

Regardless of your situation, you must demand that prospects sign a confidentiality agreement before seeing any in sensitive financial statements or proprietary information. And you must demand buyers only talk to you (and not your employees) throughout the process.

Key Points To Keep In Mind During The Process

Continue to Maintain Confidentiality

If for some reason the deal falls through at this late stage, the prospect will still possess any intimate knowledge he learned about your trade secrets and other internal matters pertaining to your business. So continued to make confidentiality a priority.

  • Remind the buyer that the Confidentiality Agreement he signed still applies.
  • Keep a log of each document you provide the buyer and confirm that it has been returned.
  • Require that any examination of the information you provide be conducted on your premises.

Conduct Business as Usual

This is advice that should be followed throughout the selling process but especially during due diligence. If you get sloppy with your management of the business it can only hurt your bargaining power. Also, a sudden loss of interest in the day to day operation of the business by the owner is often detected by the employees and can affect their productivity.

Manage the Buyer's Contact with Customers

If at all possible, try to answer any questions about customers yourself. You can't stop the seller from contacting customers on his own but it's usually not a good idea to volunteer to introduce the buyer to customers until after the deal is closed. There usually isn't any new positive information the customer will provide to the seller and it's possible that they may air some complaints.

Manage the Buyer's Contact with Employees

Especially with very key or long term employees, it is almost impossible to close the deal without the buyer talking to the employees. In most cases though it is best if you request that the buyer interview employees only after completing all the other steps in the due diligence process.

Continue to Negotiate Effectively

Be prepared for the fact that you will still have some things to negotiate during and after the due diligence phase. While the price and terms have been agreed to in writing, things may still come up once the buyer has begun his due diligence.

Much of the negotiating will center on the exact wording of the purchase contract and even though it is the buyer's attorney who usually draws up the actual contract, you and your attorney will want to have some say over how things are worded.

Conduct Your Own Background Check on the Buyer

Lastly, this process is a two way street and you should conduct your own investigation of the buyer.

About the author: Gloria A Adams works as a content writer at https://essaywritinghelp.pro. Besides, she is highly interested in business coaching. In this case, she takes part in different conferences and webinars in order to get new knowledge and skills. Gloria dreams of writing and publishing her own book on career succession.

Published by ExitAdviser


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