Confidentiality is critical when selling a business because it protects sensitive information from being disclosed to competitors, customers, suppliers, and employees, among others.
With our years of experience as M&A Brokers, it’s surprising to see that some business owners think selling a business is just a simple business transaction and they don’t give much, if any thought to confidentiality.
Confidentiality is critical when selling a business because it helps protect sensitive information and ensures the smooth transition of ownership. There are many other reasons why confidentiality is so important when selling a business, but here are five top reasons we think you need to know:
Protect the Value of Your Business
The last thing you want or need when selling your business is for confidential information to get into the wrong hands. You need to protect the value of your business by maintaining confidentiality during the sales process. The very fact that your business is available for sale is something your employees, suppliers, creditors, and the general public simply have no business knowing! The key is to prevent unusual business disruptions caused by the breach of confidentiality that could hurt the value of your business in the eyes of a prospective buyer. A good example of this would be the loss of a key employee who heard the business was about to be sold.
Avoid Employee Disruption
If your employees catch wind that you are selling your business, there is no guarantee that the information will stay within your company. By not maintaining confidentiality, you’re at risk of losing clients, lowering employee morale, or worse, your employees may consider leaving the company because they question their job security. Employees don’t always realize that the buyer is often in a position to pay them a better salary and offer fantastic benefits and resources.
Prevent Competitor Insight
You don’t want your competitors to have insight into your business under any circumstances, but you especially don’t want them to have access to sensitive, private information if you’re in the process of selling. If confidentiality isn’t maintained during the selling process, your confidential information is at risk of being disclosed to competitors, which gives your competitors insights into how your business operates. Not only can they use this information to their advantage, but they can also use it to compete directly with your company, which puts you and your prospective purchaser at a disadvantage.
Ensure a Smooth Transition
By maintaining confidentiality during the selling process, you’re setting things up for a smooth transition. As stated before, if sensitive information gets into the wrong hands, the entire transaction could fall apart. Keeping this information close to the vest helps you avoid mishaps that could cause issues before the sale is complete. Keeping the intended sale confidential will give both the seller and the new owner peace of mind, reducing the risk that unexpected challenges will occur.
Protect Your Reputation
You’ve worked hard to build your business and its reputation, so you don’t want to lose that from carelessness. How would that look to your employees, customers, potential customers, other stakeholders, etc. if a potential sale is publicized before it is completed and ends up falling through the cracks? This will create the perception that your business is unstable and unreliable, damaging the reputation you’ve built, and possibly hurting the value of your business.
Maintaining strict confidentiality in the business sale process is so critical, that it is considered the cornerstone of the M&A Broker industry. Murphy will use blind listing advertisements that rarely mention the name or exact location of the business. Instead, general references are made to the industry, geographic area, and financial performance to entice potential buyers to inquire further.
Once it has been determined that a potential buyer has the experience and financial capability to purchase and operate your business, that buyer is then required to sign a Non-Disclosure Agreement (NDA), which makes it very clear that the buyer is not permitted to discuss the potential transaction with anyone with exceptions for partners, attorneys, and other financial advisors.
If you’re considering selling your business, we encourage you to work with an experienced M&A Broker like Murphy Business Sales of Ohio. We have the experience you need to sell your business with confidence and confidentiality. Contact us today to get started.
