The Importance of Confidentiality in a Business Sale
When it comes to selling a business, maintaining confidentiality of the sale is of the utmost importance. If competitors, customers or employees find out about the sale, it can not only cause issues within your organization, but it can jeopardize the sale and affect the value of the business as well.
In this article we’ll explain why confidentiality matters when it comes to business sales, and how you can best protect your interests when hitting the market with your opportunity.
Why Confidentiality Matters for Sellers
1) Protecting the Value of Your Company, and What You’re Offering
Buyers want a business that is stable and has its operations under control. If employees, customers or suppliers hear that you’re selling, they may make decisions that can end up hurting your business – such as customers beginning to look for other options, or employees considering other job opportunities. Keeping the sale of your business confidential can help to avoid these disruptions and potential hits on company value.
2) Preventing Competitor Advantage
Should competitors catch wind of the sale, they could use this information to their advantage – hurting your current position. For instance, a competing commpany may try to recruit employees or poach customers by undercutting you on pricing or sowing doubt in the future of your company. Not everyone plays fair. Keeping the sale under wraps helps to avoid these frustrating scenarios.
3) Managing Employee Concerns Over the Sale
When it comes to a business sale, employees will be one of the most impacted groups involved. Employees will have worries about their job security, pay, role and the overall direction of the company after the sale. If word gets out too soon, employees may become anxious or even leave before the sale is complete, affecting the business’s performance and therefore its value and perception from buyers.
In most small businesses, news travels fast. It’s best that employees are informed only once the deal is certain, and in a controlled, professional manner.
How to Best Maintain Confidentiality During the Sale of Your Business
1) Non-Disclosure Agreements (NDAs)
The first step when entering any discussions over the sale of a business is to sign a Non-Disclosure Agreement. These legal documents bind both the seller and potential buyers to secrecy and protect sensitive information. It’s essential for sellers to have a well-drafted NDA in place before sharing any confidential and financial information with buyers, and for the buyer, signing an NDA shows a commitment to maintaining confidentiality and respect for the seller’s proprietary information.
2) Limit the Number of People Involved
Sharing news of the sale with too many people — whether it’s employees, contractors or even friends and family — increases the chance of a leak. Limit the number of people you share this news with, and be discerning about whom you share it with
3) Use a Business Broker or M&A Advisor
A business broker or M&A advisor plays a key role in keeping the sale confidential. Brokers and M&A advisors act as intermediaries, qualifying and presenting only financially-capable buyers who are fully non-disclosed. Besides avoiding wasting time with buyers who aren’t a match, this minimizes the risk of a leak during early negotiations. For more information on the difference between one and the other: When to Use a Business Broker vs M&A Advisor
4) Discretion During Due Diligence is Vital
Buyers should exercise especially high-levels of discretion during the due diligence process. This is when the most confidential information is shared. While it’s necessary to inspect the business thoroughly, buyers should be mindful of how they approach the current owners, employees, and third parties during this phase. The more discrete the buyer is during this stage, the more likely a smooth transition.
Conclusion
Confidentiality is a key part of any business sale. It protects the value of the business, shields the seller from unwanted attention, and allows both parties to negotiate freely and without frustrating interruptions and concerns. By keeping the business sale confidential, you’ll have your best path forward to a smoother, more successful transaction.
If interested in selling your business, contact us for a free consultation: Capital Business Solutions