Keeping the Sale of Your Business Confidential
Some businesses, such as historic landmarks or famous establishments, can actually benefit from publicly announcing they’re for sale. Yet, for most businesses, maintaining confidentiality can be extremely important during the business sale process, as well as post-sale so you can reach your exit goals.
If word gets out to your creditors, customers, competitors or employees that the business is being sold, it could trigger a negative reaction, weakening your business momentum and therefore its value. Moreover, prospective buyers may become hesitant if they feel sensitive information has been shared with others.
Once you start marketing your business for sale, confidentiality can be tricky, but less so if you're working with a business broker. Business brokers are experienced at fielding inquiries from would-be buyers and reaching out to prospects without ever mentioning you or your company name. Yet, if you’re selling your business on your own, there are several steps you can take to ensure the sale of your business doesn’t leak out prematurely.
Here are 7 steps you can take to ensure confidentiality when selling your business:
1. Prepare a Non-Disclosure Agreement (NDA) in advance.
Have this ready for presentation to qualified buyers. You can usually find sample agreements online or work with your attorney to formulate your own. Don’t provide any details or specific information that could identify your business prior to the buyer prospect signing this agreement. It’s important to include a clause that ensures confidentiality from both parties, plus an expiration date on the agreement.
2. Use blind ads when advertising your business.
Do not share your personal contact information or business name when you advertise your business for sale. You can reveal this information after obtaining their confidentiality commitments. A blind ad will lead with a headline that promotes the strength of the business, instead of its name.
- Create a separate email account with a non-business email address to disguise yourself with all buyer inquiries. For example, set up an email account called restaurant4saleLA@youremail.com.
- When placing the ad in traditional print media, use a media-provided P.O. Box.
- When using online business-for-sale sites, use the site’s identity-protecting features.
- Set up a phone number that is not connected to you or your business in any way. You don’t want prospective buyers contacting your businesses and speaking to employees and you don’t want your competitors seeing a phone number on the ad that they recognize.
3. Prequalify buyers before sharing sensitive information.
Screening potential buyers protects your confidentiality as a seller. Do not hesitate to ask a prospective buyer about his or her financial and business background. Qualified buyers expect you to screen them; they are serious shoppers and prepared to provide information about themselves in order to move on to the next steps. Additionally, qualified buyers prefer information about your business remain private because they want to know that the business they are buying has taken steps to protect its trade secrets and financial information.
An effective method of screening is to formulate your ad with response requirements in a way that helps unqualified buyers opt themselves out. Ask them to describe their purchase intentions and qualifications. Prior to talking with potential buyers, prepare a form to record information about them, as well as a short script to help you answer their questions without divulging the identity of your business. Establish rapport by setting up a fair exchange of information. Keep in mind that it’s not unusual to have at least a 50% drop-out rate after the first round of communication, since this is the beginning of the process of narrowing down the field to qualified buyers.
4. Prepare a selling memorandum and number the copies.
Once you’ve determined if someone is a qualified buyer and they’ve signed your confidentiality agreement, provide them with a selling memorandum containing a unique identification number for tracking. A seller memorandum is a thorough overview of your business and why it’s a good purchase prospect. This is often referred to as a selling memo, a confidential description book, or an offering memorandum. In the footer of each page, add a reminder that access to the document is governed by the terms of the confidentiality agreement and that there will be legal consequences to any breach of that agreement.
5. Obtain a signed letter of intent.
Always disclose information about your business in phases.Even with a signed confidentiality agreement, you shouldn’t share proprietary information, client lists or trade secrets about your business. First and foremost, the buyer must demonstrate their purchase ability and their intent to make an offer.
6. Never hold meetings at your place of business.
Always meet off-site. An ideal place to meet would be at the office of your broker, accountant, or attorney.
7. Involve as few people as possible.
You may require the assistance of a few key employees to assist you in assembling due diligence or a buyer may want to meet the team. Nevertheless, it’s best to limit the number of personnel involved and explain to them the downside of a confidentiality breach.
As you follow these steps, remember to deliver information about your business confidentially and in phases. Start by sharing a brief description of your business in your blind ad. As you screen inquiries and filter out unqualified buyers, take all the necessary steps to ensure confidentiality as you disclose more details to serious buying prospects. Balancing questions from buyers and maintaining confidentiality can be difficult, yet, proper preparation can ensure the sales process goes smoothly.