The Importance of Confidentiality When Selling a Business
One principal concern a business owner has when deciding to sell a business is confidentiality, and rightly so. Selling a business is a time-consuming process that can take months depending on the level of preparedness the owner has put into their exit strategy. During this process, it is important that the company maintains discretion when getting the message out to prospective buyers or going through initial due diligence. Word getting out prior to the sale can spark undesirable reactions not only from employees but also from clients, vendors, and competitors.
Once an employee finds out about a potential sale, the word can spread throughout the operation which can reduce workforce leading to the reduction in capacity. Employees will question their future which eventually triggers poor performance and early attrition. This could have a domino effect on the rest of the company and lead to poor quality and customer service. Not to mention a damaged company culture.
Word can also spread to clients who may begin to question why the business is for sale in the first place. For example, could the company be in financial trouble and looking for a buyer to take over the debt and restructure? Or even if the company isn’t struggling, will a new owner lead to unwanted changes in the level of service and cost to the client?
Vendors may also get a word and begin to question whether they are going to keep the business as a client after the sale. The news may cause them to negotiate contracts that they have been meaning to address including changes in costs or level of service. They may also inadvertently spread the news to a competitor that is also one of their clients.
Once competitors find out about a potential sale of the company, they may develop strategies to target the company’s client base. Spreading the word for example that the company may be changing ownership or could potentially be in financial trouble will create doubt and a sense of urgency that could trigger the decision for clients to look elsewhere for their services.
All above outcomes can hurt future business and reduce the value of the company when planning to sell a business. Following careful steps in the process such as remaining anonymous in marketing the business for sale, signing an NDA with prospective buyers, and ensuring conversations don’t spread to employees will help in safeguarding confidentiality. Working with the right business broker or M&A advisor during the process will also act as a buffer between a prospective buyer and seller and will always have the confidentiality of the seller in mind.
