Confidentiality protects the value of your business while it is on the market. If staff, customers or suppliers learn of a sale too early, uncertainty can damage performance and weaken your negotiating position. A controlled, confidential process lets you choose who knows, and when.
By Tony Vaughan · Published · Last reviewed
When selling your business, it is important for the business owner to keep this process confidential…
Why is this the case? Because it gives you the upper hand. Through a confidential broker, only you can see who and how many people are interested in your business, without anyone else knowing and potentially putting your business at risk.
Think of it this way, you wouldn’t sell your business like you would your own property. You wouldn’t put up a “For Sale” sign, invite people around for an open house visit and want everyone to know your business is for sale by advertising online and in the newspapers. This level of visibility stirs rumors and instability among employees, customers, and vendors which creates opportunities for your competitors. While confidentiality puts you in control of the situation until you are ready to tell others you are selling your business, putting you at an advantage.
See below four scenarios that could happen to you, if people find out your business is for sale:
- Employees Become Worried
If the news of your business sale were to be released this can create uncertainty amongst your staff. A number of your employees may be asking “is my job safe?” and rumours will start to spread. Employees should never have the burden of worrying about losing their jobs or the potential of thinking they won’t get along with the new owner. However, if you sell to the right buyer then the employee’s jobs are safe, and they will have a greater opportunity rather than their jobs being at risk. Although you will still need to invest time in your employees during the initial unsettlement by reassuring them and keeping them on track.
- Customers Look Elsewhere
Your customers and clients may start to have doubts about the businesses stability and whether they will still receive the same level of service and quality from the new owner as they did with yourself. We have all seen and heard of examples where loyal customers have started to look for another supplier “just in case”. If your customers do decide to find a new supplier this can potentially weaken your companies’ value and business momentum.
- Vendors and Creditors May Tighten Terms.
Sometimes when a vendor or creditor learns that your business is for sale, they tighten their terms or change their credit policies until a new owner is in place. If this happens, you may find that it could affect the terms of the loan payment, such as when the payments are due. Which can affect the management, or day to day cash flow of the business.
- Competitors May Try to Steal Your Customers.
Last, but certainly not least, is the concern that your business competitors find out that you are selling your business. Competitors can use this as an opportunity to let your customers know and undermine their confidence in you. Should this occur, your competitors may potentially use this as leverage to bring customers in through their doors, consequently diverting them away from your business.
Bottom line: In order to increase the likelihood of a successful sale of a business at an optimum price, keep it confidential!
On average it takes 9 months to a year to sell a small business and between 12 to 18 months to sell a mid-range to larger SME business [1], during that time any one of the above could negatively effect your business and decrease its value. That is why confidentiality is critical no matter the size of the company or the type of business.
Worried About Confidentiality When Selling Your Business?
We also require that all interested parties are to sign a Non-Disclosure Agreement (NDA) before they view any confidential information. This is to ensure that you the business owner, remain firmly in control of who has access to your company’s sensitive commercial information. Once the NDA has been signed and the relevant information on the prospective buyer collated, we will seek your authority before sending them any confidential information.
[1] ‘How to sell a business’ Andrew W, Entrepreneur Handbook, https://entrepreneurhandbook.co.uk/how-to-sell-a-business/ March 20, 2019.
Understand your options before deciding. If you would like to discuss your own circumstances, you can request a confidential business exit review; enquiries are reviewed by experienced advisers who can discuss suitable options.
Common questions
Why should a business sale be kept confidential?
Early disclosure can unsettle employees, worry customers and suppliers, and alert competitors. Keeping the process confidential protects trading performance and preserves your leverage in negotiations.
How is confidentiality maintained during a sale?
Typically through anonymised marketing materials, staged disclosure of information, non-disclosure agreements before sharing sensitive details, and limiting the circle of people who know the business is for sale.
When should employees be told about a sale?
Usually as late as is legally and practically possible, once the outcome is reasonably certain. Where TUPE applies, employers have specific information and consultation duties, so timing should be planned with professional advice.
Does a non-disclosure agreement guarantee confidentiality?
No. An NDA sets legal obligations and remedies, but it cannot physically prevent a leak. It works best alongside careful buyer vetting and staged release of information.
Sources
General information from our archive, not personal advice.
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