One of the most misunderstood aspects of selling or buying a business is the confidentiality issue.
Why do owners who are selling a business want to maintain confidentiality? Why is everyone so paranoid?
Here’s a short list:
- If employees find out the business is for sale they often assume the worst even though it’s not true 99% of the time. For some reason most employees assume that if the business is being sold they will lose their jobs. That uncertainty between the time the employees hear the business might be selling and when it does sell leads employees to try to protect themselves by looking for another job. The irony is that business buyers are worried that the employees will quit, while employees worry a new owner will fire them. If the first any employee hears about the business being sold happens after the sale the new owner can say to them “I bought the business and I want you to stay with the business, you have a job .” Confidentiality helps the buyer and seller.
- If competitors hear about a business being sold they will talk to customers and spread rumors and try to scare customers into leaving the company. Comments to customers like “XYZ Co is for sale, they aren’t able to fill your orders” can sometimes, even though not true, disrupt the business prospects. The buyer wants those customers after the business purchase so protecting confidentiality helps the buyer and seller.
- Vendors – Supplier’s get antsy if one of their customers is being sold because they have a fear of not getting paid or losing the volume. So vendors sometimes will put a business on c.o.d. terms if it fears a sale will jeopardize the credit it has extended the business. Again, if buyer can tell vendor after the sale. “I’ve bought the business and I look forward to continuing to use you as our primary supplier” the vendor at least knows they still have a customer. Confidentiality is good for business buyer and business seller.
The above are just 3 examples of why maintaining confidentiality when buying or selling a business is important. Your business broker will have confidentiality agreements that outline in detail the specific terms that bind the parties to confidentiality. Read it, understand it and respect it because if you buy the business you’ll be glad to did.
If you find this article helpful you may want to look at Part 1.