The reason for keeping hush hush in a business sale
This week’s blog features a question I often get when I’m meeting with hopeful business buyers and entrepreneurs:
Q: I am interested in reviewing a business for sale, why is a confidentiality agreement needed?
When a business is for sale, 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 business brokers 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, you may ask. If the central theme in your marketing plan for so many years has been promoting your product or service full tilt, then the process should be the same for selling your business, right?
Not quite, as there are a number of relationships that can be drastically affected.
- Customer Relationships: If customers learn of a potential sale, they may start thinking of other 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 word leaks and staff learn of a sale too soon, they may get nervous about job security, culture change or other facets and jump ship.
- Competitor Relationships: It is important that competition not know of the business for sale as you don’t want them to gain the opportunity to inform your customers or vendors. On the other hand, competition can be a viable purchaser of the business. A broker is able to approach competitors anonymously and ensure that a signed confidentiality agreement protects the client from damage.
One thing to keep in mind, as we discussed earlier – it can take 6 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, we have a specific process we follow to ensure confidentiality is maintained when working with business sellers. 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 a process that doesn’t reveal everything the minute you ask for it:
- Fill out buyer registration form (identity, approximate net worth, business buying interest). This helps us match you to the right business, and protects the seller.
- Sign company-specific confidentiality agreement
- Receive 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. Detailed access to all corporate and financial records.
- Final agreement & closing.
To learn more about selling a business and confidentiality, contact Beal Business Brokers and Advisors today.