Business owners who are interested in selling their businesses are usually hypersensitive about confidentiality. They should be! As a Business Intermediary, I am too! Without confidentiality, my industry simply could not exist or thrive. Rest assured, I don’t just rely on chance to keep the sale of your business under the radar.
Why So Shy?
A few owners still ask, “Why keep the sale such a secret? We want to find buyers, right?” Most assets that are sold, a used car for example, don’t need to be kept confidential, and in fact, need to be broadcast widely to find buyers. But your business is your livelihood, and letting people know that it is for sale can have negative consequences for a number of your stakeholders.
- Employees – Most of them are just fine after a sale. Afterall, your professional and knowledgeable staff are part of the reason your business has value, and attracts buyers in the first place. But employees fear change and the unknown. If they know that a sale is in the works, they may take the time to find new employment. Rather, when they are presented with a new owner, they will generally give the new owner the benefit of the doubt and stay with the business.
- Vendors – Vendors are your unofficial partners in your business. They provide products and services, but they also provide stability and credit. Knowing a business is for sale could impact that availability and credit, so it’s best to let them know only when absolutely necessary, late in Due Diligence, or even right after the closing. Also, vendors are in contact with your competitors, so we want to keep them in the dark to prevent any inadvertent disclosures that may precipitate a competitive reaction.
- Customers – Change is often good for your customers. New owners bring new ideas, new vision, new capital, and other benefits. Customers are people too, so they have fears about change. We don’t want them to have any reason to defect during this critical time in the life of the business. Wait until after closing, and let the buyer decide how to market the change of ownership.
- Competitors – Obviously, you don’t want your competitors to know about your sale, as they may respond in the market in ways that are detrimental to your revenue, and all of your other stakeholder groups above.
- Failure to Sell – For a variety of reasons, sometimes a business for sale does not consummate a closing transaction. If your stakeholders knew about the sale intent, relations can become awkward if the sale is not completed. During the sale process, Business Intermediaries advise their Sellers to continue to operate the business as a Going Concern. If a sale does not occur, the owner is still moving the business forward to ensure their livelihood and those of the other stakeholders.
- For Sale by Owner – If you are considering selling your business on your own, how will you market your business, manage buyers, and conduct the transaction while preventing inadvertent disclosures to any of the stakeholders above?
For the reasons above, confidentiality is part of my DNA, and here’s how I maintain it throughout the process.
- Initial Contact
As a Business Intermediary, I don’t have any fancy company shirts with my company name and logo embroidered. How would I explain that to your receptionist? I also don’t announce my company, or leave messages announcing my company, at your business except when I know that I am speaking to the owner.
- Meeting with Prospect Sellers
My appointment requests will address confidentiality. I will typically suggest meeting with the owner after hours, at a remote location like a coffee shop, or only at the business if an owner is comfortable that my identity and our discussions can be kept private.
- Receipt of Sensitive Financial Documents
In my initial contact, my goal is to get to know the owner and his or her motivations, and begin to learn about the business, it’s market, and its financial performance. I will be requesting some very sensitive documents such as tax returns and income statements. While I only use these documents to consult with the owner and provide a valuation for the business, I recognize that some owners require assurance of confidentiality. I am more than willing to provide a Non-Disclosure Agreement to the owner in exchange for a review of these documents.
- Marketing the Business
How does a Business Intermediary market a business without disclosing its identity? While I prepare and circulate a Business Listing Information (BLI) page for the business, any identifying information is redacted or altered. I describe the business in general terms, while avoiding specificity regarding location and product brands. There are no business names, addresses, websites, phone numbers, owner names, photos, or any other methods for positive identification included in the BLI or Listings that I publish to prospect buyers.
- Qualifying Buyers
Once a buyer has reviewed generic information about the business, and expresses an interest in learning more, they must undergo a qualification process that the Seller and Broker have agreed upon. This includes, at a minimum, signing a Non-Disclosure Agreement, such that the buyer agrees not to disclose the identity of the business, the fact that it is for sale, or any of the financial information for which they become aware. It also typically requires that a buyer provide his/her background, via a resume, profile questionnaire, or LinkedIn profile, that demonstrates that they have a background suitable and necessary to operate the business successfully. A buyer is also often required to provide some form of financial disclosure indicating that they have the wherewithal to purchase the business, or at least fund the likely down payment and upfront costs. There may be other general or specific qualifications that a seller requires of potential buyers. All of these elements must be satisfactorily met before the Business Intermediary will share the Confidential Business Review (CBR) that has been prepared for the business with a buyer. Without meeting these requirements, a buyer is likely going to waste the time of all parties involved, and perhaps put the business at risk of inadvertent disclosures of confidential information.
- Buyer Walk Through
Upon inspection of the CBR, a buyer may request a teleconference call with the seller or an on-site visit to gain additional information, inspect the assets, or see the operations of the business. These activities are strictly arranged by the Business Intermediary so that they will be handled in a confidential manner. Buyers are not permitted to perform their own “scouting” or “secret shopping.” Any on-site visits are typically handled after hours. In some instances, it is appropriate to show buyers the business during operational hours, and in these cases, the buyer is coached on how to conduct themselves, and the innocuous alias they are assuming during the visit, such as “insurance inspector” or “banker”, etc. In this way, stakeholders of the business have no suspicion about the nature of the visitor, and thus, confidentiality is maintained.
- Loose Lips Sink Ships
As Business Intermediaries, I don’t talk about listings with anyone who is not involved in the deal process; not our wives, not our friends, and not even co-workers who don’t have a need to know. It is a wise decision that sellers keep their disclosures to a minimum as well. Before disclosing your sale intentions with anyone beyond your spouse, partners, and professional advisors, it is best to discuss the pros and cons of any other planned disclosure with me as your Business Intermediary. Together, consider if the disclosure is absolutely necessary, does it bring any value to the deal process, and are there any risks involved. If the disclosure is necessary, discuss when is the right time to do it, and typically, the later the better.
Confidentiality is similarly maintained throughout the due diligence and closing process. In preparation for the closing, the buyer, often with seller’s input, will decide a strategy for how and when to inform the stakeholders of the business about the change in ownership, including employees, customers, vendors, and others. The buyer will be responsible for immediately instilling their vision for the future of the business with these stakeholders. Congratulations on a successful, and confidential, sale of your business!