Buying (and selling) a business is different from most other purchases as the transaction is discrete, hidden away from the general public. The process can be compared to an elaborate courtship, where secrecy is part of the game.
So why do business buyers and entrepreneurs assume they can contact a seller, not identify themselves, not sign a non-disclosure agreement and expect to get detailed information on any given business for sale?
The business buying process is complex. The seller wants to part with their company but does not want his or her identity known until the buyer is pre-qualified. This means the buyer must reveal their identity and “intentions” as it were. The advance of the internet has helped the brokerage business, but it has also fostered an immediacy attitude. People seem to expect they can click a box and get reams of information delivered to their in-box.
It doesn’t work that way.
When selling a business, confidentiality is very important to most owners. In fact, it is often the very first question a potential seller will ask. Confidentiality provides a challenge for a business broker as we need to find interested buyers without telling them what it is we are selling!
But why is it important to keep the sale confidential?
- Customer Relationships – If customers learn of a potential sale, they may start thinking of competitor companies they should do business with instead, especially if their relationship is with the owner and not the business as a whole.
- Employee Relationships – Employees should only know about a sale when the timing is right, if they learn of a sale too soon, they may get nervous about job security and jump ship.
- Competitor Relationships – It is important that competition not know of the sale as you don’t want them to gain the opportunity to inform your customers or vendors. Having said this, competition can be a viable purchaser of a business, and a broker is able to approach competitors anonymously and ensure that a signed confidentiality agreement protects the client from damage.
Because it can take six to 18 months to sell a business, it is important to keep operations as normal and as profitable as possible during this time and minimize any interruptions that may occur from a leak to any of the above relationships.
In order to do that, Beal Business Brokers and Advisors have a specific process we follow to ensure confidentiality is maintained. The following list is the broad steps we follow with buyers to protect the seller’s confidentiality. If you are serious about buying a business, understand the process and why we need to follow it so that it doesn’t reveal everything the minute you ask:
- Fill out a buyer registration form (identity, approximate net worth, business buying interest). This helps us match you to the right business, and protects the seller.
- Sign a company-specific confidentiality agreement.
- Receive an initial information package on the business.
- Discuss interest with us. Get specific questions answered. Get some additional information.
- Make an offer/draft a letter of intent.
- Due diligence, including detailed access to all corporate and financial records.
- Final agreement & closing.
If the business is a public business, such as a restaurant or a store, feel free to visit it on your own (in fact we encourage “mystery shopping”); but do not, under any circumstances, engage the staff (or even the owner) in a discussion about the business. This is in direct violation of the confidentiality agreement, and may harm the business you are trying to buy!
Courtship can be fun, and will, in the right circumstances, lead to a long-term relationship. But be careful not to make any missteps on the way, or to rush the process, as you may risk not being able to consummate the deal!
For more tips from the business buying experts, call Beal Business Brokers and Advisors today at 204.478.7266 or fill out our contact form.