When selling most things, it’s common to broadcast it to as many people as possible to help generate the greatest amount of interest. This is the exact opposite approach that should be taken when selling a business. The business sale process should be kept extremely confidential. A lack of confidentiality when selling a business can bring with it significant risks that could jeopardize the final sale, as well as the ongoing operations of the business.
The Risks of Not Managing Confidentiality Effectively
Sharing with everyone that your business is for sale introduces a great amount of risk. As outlined in the book Insider Tips on Selling a Business in Canada (to get your free copy, visit one of our offices across Canada, or download a pdf copy of the book), these are some of the risks involved if employees, customers, competitors, or suppliers are told of the impending sale too early in the process:
- Employees are going to have concerns and questions about a new owner. However, you won’t be able to answer anything completely until the sale is finalized, which may take months. This sense of uneasiness may cause them to seek employment elsewhere. Losing employees, particularly key employees, changes how buyers value your business.
- Customers may feel uncertain about your business’s future after hearing it’s going to be under new ownership. They could use this as an opportunity to see what else is out there and start buying from your competition, effecting the profitability of your business at an important time
- Competitors will look to take advantage of your business during this potentially unstable time. They search for any opportunity to undermine your business base, and knowing that you’re selling before anything is finalized gives them a prime opportunity.
- Suppliers may think the reason you’re selling is because your business is struggling financially. As a result, they may start changing the terms you’ve agreed to in order to protect themselves. Something like this may seem minor on the surface, but it could influence your profits.
How to Maintain Confidentiality
The best way to maintain confidentiality is to limit who is told about the potential sale. Only people who absolutely need to know should be told ahead of time. The timing of when each party is made aware of the sale also needs to be handled carefully. Otherwise, the news could end up reaching the wrong person, and have a negative effect on the final sale. Once the sale is finalized, you and the buyer should be able to fully answer any questions and concerns anyone may have. Uneasiness about a change like this is natural, so being able to reassure key parts of the business, such as employees and customers, that this change is for the best is vital.
Limiting who is told about a potential sale can be difficult when trying to get buyers interested in the business. However, professional business brokers have the expertise and processes in place to help maintain confidentiality while still finding the right buyer. Any identifying information and specific details about the business, such as its name, location, and owner, is kept private until the appropriate safeguards are implemented by the business broker. The only specifics revealed early in the process are the industry, important highlights of the business, its revenue and general profitability, and a general location of the business.
If buyers that are deemed qualified want to learn more about the business, they must sign a detailed and legally enforceable non-disclosure agreement. The signed non-disclosure agreement prevents them from discussing the details with anybody else, hence maintaining confidentiality.
If you want to learn more about our process for maintaining confidentiality, be sure to check out our Confidentiality Statement.
A lack of confidentiality during the sale of a business could affect any part of the business sale, including the selling price, interested buyers, and even if a sale can be completed at all. Although it can be tempting to share this exciting news with everyone, it’s best to wait for a finalized sale at the Closing table.