Confidentiality – A Careful Balance

Introduction

Confidentiality is an important factor to consider when selling your business for sale by owner. Too little or too much secrecy can cause problems. You must consider all the constituents of your business for sale and determine which to inform so that you can easily facilitate the sale. This includes your employees, banker, accountant, customers and suppliers. You must also be prepared to execute a Mutual Non Disclosure Agreement between yourself and the buyer. This protects your information and theirs. Finally, be sure to provide copies of any requested information to the buyer and ask to have that information destroyed if the sale is not consummated.

Sellers Need to Inform Important Constituents

Once you have committed to selling your business, it is important to notify those people around you of the decision. Bear in mind that most buyers are going to want to talk to your key employees and want references from a few key customers and suppliers. Finally, your banker will like to keep the business and may likely be the best source of financing for the buyer.

An important point to remember is that most buyers are making the largest financial decision of their life. If you want them to part with their money and take over your business for sale by owner, you can be sure that most will want understand your business inside and out. That means talking to key employees, customers and suppliers.

Thus, you will need to draw the link mentally and when you commit to selling the business, you must also commit to the following steps:

1. Let key employees know that you are thinking about selling the business. If you want to soften the news, you can tell them that you are considering taking on an investor to grow the business. Your accountant, bookkeeper or CFO will definitely need to be in the loop. Prospective buyers will need a lot of detailed financial information. Unless you as the owner have ready access to the accounts receivables, payables, tax returns, etc. you will need their help.

2. If you are in the business to business space, you will need to let some of your largest customers know that you are considering a change. You will want to ensure them that nothing will change and that you will stay involved in the business until the transition is complete. Sellers of businesses for sale by owner should keep in mind that this disclosure may have additional benefits. Customers may develop into potential buyers for your business. Sellers will have the added benefit of knowing this potential buyer and their purchasing power, whereas the customer is not likely to show interest unless they are serious.

3. If your business for sale by owner relies heavily on a few suppliers, you will need to let them know of your interests. Once again, you might consider telling them that you are looking at growth partners. Sellers should pay special note to this, since many businesses are purchased by their suppliers. Sellers of businesses for sale by owner may discover that their disclosure results in securing a strong potential buyer. Suppliers often have an eye expansion and they are likely to know more about your business than any casual buyer.

4. Your banker should be made aware of your intentions. Your banker may be of helpful service in two ways. First, your banker may be able to suggest potential qualified buyers from their portfolio of customers. Second, your bank may be an excellent source of financing for the new buyer. Finally, your banker’s broad experience may be of use to you in evaluating prospective buyers. They interact with a lot of business owners on a regular basis and may be able to help you assess the best and worst qualities of your potential buyers.

By notifying and involving these people, your likelihood of presenting a more comprehensive, credible perspective of the business improves dramatically. Thus, your chances for selling the business improve dramatically.

Remember Who The Customer Is

When dealing with potential buyers, remember that you are the one selling and they are the one buying. Let me repeat this. You are selling a business for sale by owner and they are buying. You have one thing to sell and they have many businesses for sale they review for purchase. While your business is assuredly special and the manner in which you run it unique, you must remember that there are thousands of businesses for sale by owner at any given time. You must remember that you want your business for sale by owner to stand out, so that you may garner the interest of more than one buyer. By creating competition among buyers, you improve the odds of selling the business and more importantly, getting a better price for it. This can only happen if you genuinely help the buyer overcome his need for information and gain comfort with your business model.

Think of it this way. Most companies find ways to make their customers comfortable and give them the information they need to purchase their products and/or services. Sellers of businesses for sale by owner really need to think of this process as the ultimate sale to the ultimate customer. Do you want to make it difficult for the customer to buy? Probably not.

Mutual NDA Protects Buyers and Sellers of Businesses For Sale By Owner You will want the prospective buyers to sign a Mutual Non Disclosure Agreement. This is a legally binding agreement and we have included it here for your use. A Mutual Non Disclosure Agreement shows the buyer that you, the seller, respect their privacy as well. The Mutual NDA protects your information and that of the buyer. In other words, the buyer cannot discuss with unrelated parties the details of your business or the very fact that the business is for sale. At the same time, the seller must take steps to protect any financial information that is provided by the buyer during the purchase. In today’s world of identity theft, buyers with substantial net worth’s do not feel a strong need to publicize their financial capabilities. Thus, a Mutual NDA protects the buyer and the seller, and will compel both to take steps to protect the information they are given.

Prepare Copies of Important Documents

Often times I am puzzled when evaluating a business for sale. Another buyer is also looking at the business and the seller has given the originals of many important documents to that buyer. Without access to this information, my ability to evaluate this company is over. Although it seems fairly obvious, it is important to point out that making copies of all relevant information and distributing those copies after executing the NDA makes more sense. By distributing documents in this way, sellers of businesses for sale by owner will be able to work with several buyers simultaneously, which will improve the odds of a sale and may drive the price up as well.

Once the sales process is complete, or a particularly buyer has stated that they are no longer interested, you can simply ask any one with the copies to destroy them. No one minds destroying confidential documents, but having to package and return them is usually more hassle than most buyers will deal with.

Don’t Rule Out Your Competitors as Potential Buyers

Many businesses for sale by owner are concerned about their competitors learning of their intentions to sell. Most of these concerns focus on the fact that competitors are simply trying to look into the business and learn all that they can. Armed with this new information, competitors can change the dynamics in the marketplace and damage the business. This is certainly one way of viewing competitors. However, it is important to consider competitors of your business for sale by owner in another way.

Sellers need to recognize that in many situations, competitors can be your most qualified buyers. Think about it. They understand the business better than any other potential buyer. They likely share suppliers and customers. They know how to sell the products and/or services and are likely to believe that they are likely to be better off by being bigger. The fact is that most businesses are bought by competitors or other members of their supply chain, either suppliers or customers. Sellers of businesses for sale by owner should take prudent steps to protect critical knowledge, but be open to exploring options with their most likely acquirers, competitors, suppliers and customers.

Certainly, customers and suppliers becoming acquirers may make more sense in business to business scenarios, but competitors almost always make ideal acquirers for a business for sale by owner. Take most retail applications, where growth is usually based on expansion of locations. In crowded metropolitan areas, finding new locations can be difficult. Thus, companies hungry to grow may look to acquire their competitors.

Conclusion

Contrary to some popular thinking, sellers really need to approach the process o f selling their business as if they are making their biggest sale to their biggest customer ever, because that is exactly what is happening. Buyers will want a lot of detailed information about your business. They will want to see the business in operation and talk to key employees. If the seller has reached a decision to sell the business, they must take steps to educate their key employees, banker, accountant, customers and suppliers about their plans. Not only does this improve your chances of getting the business sold at a better price, but it also opens the door to other potential buyers. Remember, confidentiality is an important part of selling a business for sale by owner, but maintaining too much secrecy will negate any chance of selling the business at all. Given the sheer volume of businesses for sale at any given time, sellers cannot afford to jeopardize their chance to sell their business quickly for the right price by using a broker.