Business owners should keep the fact that they want to sell confidential. Before releasing information to prospective buyers, those buyers should commit to confidentiality in writing and should understand why it is important. Business brokers & intermediaries make commitments to owners of each listed business to keep the sale confidential.
In order to keep these commitments brokers must require each buyer to maintain confidentiality. This means that buyers agree not to do anything that would let anyone know that the business is for sale or let anyone learn any of the information about the business that they discover in the process of examining it. The only exception is that buyers may inform their advisors, such as attorneys and accountants, in order that they may assist in the process.
These professional advisors must first commit to maintain confidentiality. This is a very serious commitment as the business may be harmed if confidentiality is violated, and the person who breaches the confidentiality commitment may be liable for damages.
To maintain confidentiality all communications must be strictly between the buyer and the seller and/or his agent, i.e. the buyer agrees not to contact the business owner, its employees, vendors, landlord, accountant, neighbors or especially customers. Buyers agree to visit only when they make an appointment approved by the owner. Buyers must agree not to discuss the sale with friends or coworkers - it is a very small world!
When touring a business be sure not to speak in front of employees or bring any confidential materials provided by the seller or an agent to the business premises. Employees have found confidential business summaries on the tables in restaurants for sale after a buyer/seller meeting!
What can happen if confidentiality is breached? Here are some things that have happened:
1. Primary vendors put the business on COD terms causing a major financial crisis for the owner.
2. Half of the employees quit in a panic because someone started a rumor that the new owner was going to fire everyone (never true, but employees don't know that) rather than wait to be fired, they sought and found new jobs. The owner was unable to operate the business profitably.
3. Competitors have used the fact that the owner was selling to sell against the business, pointing out to prospective customers that any guarantees would be worthless after the sale (not true, but scares customers and may influence their purchase decisions).
4. Employees found the offering information left behind by a prospective buyer. When they learned how profitable the business was, they demanded pay increases from the owner!
5. The word got around inadvertently to employees, who started stealing large quantities of cash and merchandise, thinking that the owner would be gone before he discovered it.
The world is sometimes a very small place. The theory of networking says that each of us is separated from any other human being by no more than five degrees of separation. If you speak about the sale in front of strangers, one of the people who overhear may turn out to be the spouse of a key employee in the business, or a vendor. So pretend you work for the CIA and that all of the information about the business "including the fact that it is for sale" is mission critical, top secret information!
#about#About The Author: Peter Siegel, MBA is the Founder of BizBen.com and the Director of the BizBen Network. If you are searching to buy a California small business make sure you are a part of the BizBen Business Buyers Success Program. If you have questions about buying a business, getting SBA Loan pre-qualified or about the Business Buyers Success Program please feel free to phone Peter Siegel direct at: 925-785-3118.
Categories: BizBen Blog Contributor, Buying A Business, Deal And Escrow Issues, How To Buy A Business, How To Sell A Business, Selling A Business
Comments Regarding This Blog Post
Often business buyers comment that keeping business-for-sale information benefits the seller, but really has no importance to the buyer.
They couldn't be more mistaken.
A prudent business seller keeps the offer to sell confidential because any prudent buyer does NOT want to buy a business with employees, vendors, or customers making plans for weeks or months to "bail out" as soon as the ownership changes hands. Prudent buyers should be as concerned as sellers about keeping everything confidential.
When advertising it's always smart not to put too many details which are obvious for potential buyers to find out, such as writing "Irish Bar in Downtown (fill in city) near beach" because if there is only one Irish Bar in Downtown...anyone who is slightly familiar with the area will be able to figure it out. If I as a broker, don't feel comfortable with a potential buyer (possibly they are an agent trying to steal a listing) I will have them come into the office to get the information rather than fax or email the NDA.