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Why Is A Small Business Sale Kept Confidential? How Is That Done?

Comments & Replies: 10 Views: 2178 Posted By: Timothy Cunha JD

Recently a business owner asked me on the phone, "Why do you keep the sale of a business confidential? How do you keep the sale confidential - any good tips?" Would like to hear from other Members - what would be your answer to this business owner? ProIntermediaries on BizBen discuss this topic.

Topics: Business Brokerage, Buying A Business, Due Diligence, Non Disclosure Agreements, Selling A Business Tags: buying a business, for sale by owner, non disclosures, selling a business

Contributor: Timothy Cunha JD, Business Broker: San Francisco Bay Area

First, why keep a sale confidential. If employees know that a business is for sale, they may become distracted or anxious and thereby less productive, look for other jobs, leave, or try to negotiate unreasonable terms to stay.

If landlords find out too soon, they may not be as receptive to lease extensions, renewals, or modifications. If suppliers learn, they may restrict their credit terms, look for alternate customers, raise prices. If competitors become aware of the sale, they may begin to market more aggressively, tell the public to scare customers and prospects into leaving the company for sale. All this eventualities will have a negative impact on the company's sales and profits and that will have a direct negative effect on the final purchase price.

Furthermore, in most cases, a potential buyer will recognize that a non-confidential business listing will adversely impact the business, make it less valuable, and, therefore, they will offer a lower price.

Second, how to keep it confidential. The business needs to be advertised with professionally-written copy that provides enough information to attract interest but not so much as to reveal its identity. Then, it is always best to have a business broker acting as an intermediary to obtain a strict non-disclosure agreement (NDA) and buyer profile to assure that the offering will be kept confidential and that the buyer has the apparent ability to purchase the business.

Only after the broker has received the NDA and profile should the business details be revealed.

Would like to hear what other ProIntermediaries and ProAdvisors think about this topic. Thanks for contributing to my post.

Contributor: Business Broker, SF Bay Area

If it became public knowledge that the business is for sale then you can have customers, vendors, and employees get concerned and start to take action that is detrimental to the business. For examples customers could start shopping around for other vendors. Your competitors could actually use that fact to take over some of your customers. Your vendors may start to get very tight about terms and possibly change your terms to COD and some of your key employees may start looking for other employment.

So by the time you are ready to close escrow the business could be very different. The best way to keep the process confidential is to engage a Business Broker. Hence all contact is through the business broker. The broker will have all prospective buyers signed a confidentiality agreement before disclosing any identifying details about the business.

Then during the process you meet at the broker s office or during off-hours so that employees do not become aware of it. If you are trying to sell it directly then as soon as you answer the phone or email, people can figure out which business it is.

Contributor: Rick Carlson, Business Broker - Southern CA

Protecting the interests of the Seller, Seller's employees, Seller's customers, vendors, from Buyers is the main reason.

We employ a variety of measures, it starts with an NDA and can take the form of "anonymous" deal books for our large transactions. We ask for a Buyer's opinion of value "subject to:" further due diligence and verification that all data supplied in the sales prospectus is true and accurate.

This way if a Buyer low-balls the anonymous deal book, "Who cares?" you can move on knowing the Seller's identity and all the other relationships shall be maintained and protected without interference from a goofball Buyer.

Contributor: Business Appraisals, Valuations Advisor

There are two good reasons to keep the sale of your business confidential. You don't want your competitors or your employees to know. Your competitors may spread the word that you are going out of business and you should give them your business and your employees will feel very insecure and may even look for new jobs.

Before you even give a potential buyer your business name have him sign a Non Disclosure Agreement which states that the fact of your business being for sale is to be kept confidential.

Also, even after a sale do not make the fact of the business being sold publicly known.

Contributor: Business Broker - Preschool Specialist

The reasons for keeping the sale of a business confidential would be the same reasons that you would keep your bank account balance private, or your salary, or your financial statement. But additionally, there are multiple reasons for maintaining confidentiality, before, and after the sale of a business. Depending on the type of business you have, you must be sensitive in the handling of client/customer relations, and letting employees know at the right time about a transfer of ownership is a tricky thing as well.

The fact of a sale is one thing, the financial details are another issue entirely. Most business brokers would tell you to be very cautious in how or to whom you give out information regarding the sale of your business. The asking price, the sales price, and the financials of the business should be kept strictly confidential and you should have anyone looking at your business sign a non-disclosure agreement to help ensure that it remains confidential.

After the sale when the ownership has transferred, the case could be made that the only parties who should have access to the details about what your business sold for could be properly limited to the seller, the buyer, your CPA, and any government agency to which you have to give the information.

I know that might be obvious, but it is said to emphasize just how important confidentiality is.

Contributor: Chuck Post: Laundry Specialist, Consultant, Due-Diligence

I find that Sellers prefer to keep the possible sale of their business private mostly for their privacy and also credibility issues. In what ever business you are in you have relationships that will be effected by the sale. Employees, Customers and Vendors will all experience some level of uncertainty regarding the sale.

This can sometimes result in reduced productivity, possible problems from competitors that may use this information. Therefor when and how you announce the possible sale should remain in your control, if possible and be well thought out when you do.

Contributor: Joe Ranieri, Business Broker: LA, Orange Counties

Many great points from others, but another reason why a business is kept confidential is because unfortunately in our industry there are unethical brokers who will actively prospect businesses that are on the market and try to persuade the seller to get rid of their current agent or inquire when the listing period is over. Sometimes I will receive calls from "prospective buyers" on the location of a certain business, and if I feel that they are not truly a buyer, but a broker, I'll demand that they come in and meet me to receive information on the business. If the business is not kept confidential, some buyers will go directly to the seller and try to wheel and deal without the participation of the broker. Like others have stated, the business is kept confidential to protect the interests of all parties, broker, buyer, seller, and employees.

Contributor: Peter Siegel MBA: BizBen Founder, Lead Advisor

It's not true in every case, but the proposed sale of most businesses should absolutely be kept quiet; revealed only to those who have a legitimate reason to know, such as business brokers and qualified buyers.

A number of business owners who weren't careful about following this advice came to regret their poor judgement. The consequences can be serious to a business once customers, competitors and employees learn about the owner's interest in "getting out of the business." The fact that a business is for sale should not be known by the public until the transaction is complete or almost complete.

One of the best practices of sellers who are careful to avoid unnecessary problems is to qualify buyers as to financial ability and experience relevant to the business, before divulging information about the company being offered.

Another is to require the buyer to sign a NDA (Non-disclosure agreement) before revealing any information about the business, its financial performance and other aspects of its operations.

The smart seller does not include the phone number of the business as the contact method. Either get another phone that can't be traced to you (get a free gmail email account with Googlevoice service activated), or set up an email address (again gmail, etc) that does not identify you and will be used in your online communication with prospective business buyers.

Helpful Resources To Assist In Selling And Buying California Businesses

Diane Boudreau-Tschetter: Escrow & Bulk Sale Services In California

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Shalonda Chappel: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Brad Steinberg, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.

Helen Yoo, New Century Escrow - Escrow Services In Southern California

Helen Yoo at New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

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