Why Confidentiality is Important in Selling a Business

When you put your house on the market, you want to get the word out to as many people as possible. The “For Sale” sign is placed in the front yard, you invite people to an open house and you put ads in the newspaper and online.  You want everyone to know your house is for sale.

That’s not the case when selling a business. Openly marketing the identity of your business creates uncertainty that can hurt your bottom line and put the business in jeopardy.

To sell a business at its optimum price, keep it confidential!

Here are some things to consider:

  • Protect your employees. Employees shouldn’t have the burden of worrying about losing their jobs or that they won’t get along with a new owner.  Some employees – perhaps your best ones — may even quit before you have a chance to reassure them that everything will be ok.  Losing key people is serious, particularly during the sale process.  Key staff members provide valuable continuity and business knowledge that buyers are looking for.  Lose them, and potential buyers may be lost too.
  • Customers begin to wonder. Your customers may assume that your business is struggling which could cause them to find the next alternative.  They may also worry that they will not get the same quality of product or service from the new owner affecting the goodwill that is being conveyed to a buyer.
  • Competition: Once your competitors find out, they’ll tell your customers and use it as leverage to bring those customers to their business.  It opens the door for them to steal business from you and spark negative rumors.
  • Vendors and creditors may tighten terms. You may be working with terms of net 45 or more to benefit your own cash flow, but once creditors and vendors learn that your business is on the market you may find those terms tightening or notes called due.
  • Landlords and Potential buyers can circumvent you. If your business maintains a leasehold interest an unscrupulous buyer could approach your landlord directly in attempt to acquire your lease without buying your business.  If you are in default of your lease this is especially dangerous.

Generally it take 7 months to a year to sell a restaurant and during that time any one of the above items could negative effect your business and decrease the value.

Confidentiality is critical no matter the size of the company or the type of business. To maintain confidentiality, use an experienced and professional intermediary who understands the process and will market the business in a confidential manner, while providing the right kind and amount of information to attract “best fit” buyers.

The intermediary can screen inquiries to ensure that competitors aren’t fishing for details.  The intermediary should only share your business identity after concluding that a potential buyer is financially qualified and serious.  Such prospective buyers should also be required to sign a binding confidentiality agreement that holds them accountable for protecting your private information.

You want to maintain your “business as usual” for as long as possible.  Keeping the sale confidential until the right time will help you reduce uncertainty and maximize the ultimate selling price.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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