Why is Confidentiality Important When Selling a Business?
When selling just about anything, you generally want to get the word out to as many people as possible. A “For Sale” stamp is placed on the item with the goal being to virally expose it. That is certainly not the case when selling a business. Deciding to place a business on the market can create uncertainty, which can consequently affect your bottom line and put the company in jeopardy.
As a society in general, we are accustomed to being transparent and sharing the details about the items we are trying to sell. For example, when you sell a used vehicle, you typically drive around with ‘For Sale- Call XXX-XXX-XXXX!” pasted to the rear window. It’s easy to get sucked into doing the same with a business because, ultimately, the goal is to sell it and being private and opaque about such a thing seems both foreign and counterproductive to us. Getting caught up in the buzz a listing can create, and the potential reward of a healthy payout, can be a major faux pas.
We need to understand that a business is different from almost everything we might sell in our lifetime in that it is not a stagnant body. Unlike your used TV listed on Ebay, a business is a living, breathing entity that generates an always fluctuating amount of income/value. It is important to understand that certain actions can affect the value of a business during the selling process.
So, in order to optimize the sale price of a business, keep it confidential!
Why Does This Matter?
Outside of the sale price, there are other reasons why it’s important to keep the sale of a business confidential. Here are some of them:
Although retaining confidentiality can pose a challenge, proper preparation can aid the process and ensure that the sale goes ahead smoothly. Following are some things to consider:
1. Advertise the business listing using blind ads
2. Use a non-disclosure agreement (NDA)
3. Avoid holding meetings at your place of business during hours of operation
4. Don’t share any proprietary information until you are working with a serious buyer
Remember, the information is to be delivered in layers. There is no situation where a buyer needs to know the business’ fundamental processes, client lists, trade secrets or detailed financials prior to them committing further into the buying process and demonstrating their ability to make the purchase. A Letter of Intent (LOI) is a document that outlines the proposed terms of the deal and the intentions of both parties to close the deal. It is best to have an LOI in place prior to sharing your company's deepest secrets.
5. Include as few employees as possible
6. Establish a private communication system to exclusively deal with prospective buyers
Luckily, Tresle ensures all the aforementioned bases are covered- ability to list a business blindly, access to template digital documents (NDA & LOI), and a private channel of communication specifically designed for selling businesses confidentially.
One last thing to mention, the total process of selling a business can take some time. Be patient and don’t let the selling process get in the way of running the business - this can create a downward cycle. There are clearly many distractions and countless important tasks to deal with when selling your business. But one thing for sure is if you neglect the business entirely, you run the risk of decreasing productivity, which can lead to a decrease in sales, a decrease in the overall value of the business, and ultimately, a decrease in the final price at closing.
A buyer wants a successful operation; too many question marks mean greater risk, lower offers, and a greater potential for a prospective buyer pulling out of the deal alltogether.