Why is confidentiality so important when selling a business?
When you sell a piece of real estate, you want to tell as many people as possible that it is for sale. Your real estate broker will often put a sign in the front yard, hold open houses, and place advertisements in the newspaper and online.
However, when the time comes to sell your business confidentiality is often the better route. Advertising the sale of your business makes people start to wonder, and can create uncertainty that can be detrimental to your company.
At Capital Advisors, we believe that in most cases, keeping the sale of your business confidential increases the likelihood of a sale and allows you to realize the highest price.
Following are a few things that can happen if the public discovers your business is for sale:
Your employees will be nervous. Your employees will begin to wonder if their jobs will disappear or if they will get along with a new owner. Some may even quit before you have a chance to discuss the transition. If they don't quit, they may start looking for another job and loose focus on their current responsibilities.
As any business owner knows, losing key people is a serious problem. It is even more serious during the sale process, as key staff members provide valuable business knowledge that buyers will look for.
Your customers begin to wonder. Your customers are your bread and butter. If they hear word of a sale, the may become concerned that the new owner may not be able to provide them with the same product or service that they have become accustom to receiving.
Your competitors will spread the word. As soon as your competition finds out that your company is for sale, they will start to talk. They will talk to your customers, your suppliers, and anyone else they can think of in an effort to steal business from you. Lost business is the last thing you want when your company is being sold.
Your vendors and creditors may tighten terms. Creditors and vendors get very nervous when they learn that a business is for sale. You have a working relationship with them in which you have gained their trust. A new owner will have to start anew or may choose new vendors all together. If your creditors and vendors learn of a pending sale they may tighten your credit terms of unexpectedly call notes due, as they want to be sure that they are paid when distributions are made.
Additional thoughts about confidentiality. On average, a business sale takes nine months to one year to fully complete. You’All want to spend most of this time preparing for the transfer of ownership by doing what you do best, running your business, not solving new problems.
Furthermore, a buyer will want to start to operate with as few changes in the operation of the business as possible, only making changes when he or she see fit. At the end of the day, questions and instability translate to higher risk and lower purchase offers.
To maintain confidentiality, use a firm such as Capital Advisors who understands the sales process, understands how detrimental a breach on confidentiality can be, and who knows how to market the business in a a way that attracts potential buyers in a confidential manner.
Once a potential advisor is identified, Capital Advisors will screening all inquiries to be sure that the inquiries is not from a competitor who is fishing for details. We will only share the identity of your company after we determine that a potential buyer is qualified and genuinely interested. If a buyer passes this test, the potential buyer will be required to sign a binding confidentiality agreement.
In the end, you want to run your business "as usual" for as long as possible. Keeping the sale confidential until the appropriate time will help to keep employees and customers, minimize problems with creditors and vendors, and not give the competition and advantage. |
