This month we want to talk about the importance of a confidentiality agreement.   

 

When selling a business confidentiality is very important to most owners. In fact it is often the very first question a potential seller will ask. Confidentiality provides a challenge for business brokers as we need to find interested buyers without telling them what it is we are selling!

 

But why is it important to keep the sale of a business confidential?   

 

It can take 6 to 18 months to sell a business. It is important to keep operations as normal and as profitable as possible during this time and minimize any interruptions that may occur from a leak to any of the above relationships.

 

Customer Relationships - If customers learn of a potential sale, they may start thinking of other businesses they should do business with instead, especially if their relationship is with the owner and not the business as a whole.

 

Employee Relationships - Employees should only know about a sale when the timing is right. if they learn of a sale too soon, they may get nervous about job security and jump ship.

 

Competitor Relationships - It is important that competition not know of the sale as you don't want them to gain the opportunity to inform your customers or vendors. 

 

In order to maintain confidentiality, we have a specific process we follow.  The following list is the broad steps we follow with buyers to protect the seller's confidentiality. If you are serious about buying a business, understand the process and why we need to follow a process that doesn't reveal client identify too soon. 

1. Fill out buyer registration form (identity, approximate net worth, business buying interest). This helps us match you to the right business, and protects the seller
2. Sign company-specific confidentiality agreement
3. Receive initial information package on the business
4. Discuss your interest with us. Get specific questions answered. Get some additional information.
5. Make an offer/draft a letter of intent
6. Negotiate
7. Due diligence.  At this point, the buyer receives detailed access to all corporate and financial records (subject to some client confidentiality issues)

 

As discussed in previous newsletters, no one is (or should be) indispensible in their business. But business owners need to consider - one day, you will be no longer able to run your business. No one likes talking about the four "D's" of business ownership, but we all need to plan for the worst, especially, as a business owner, you have people counting on you (your clients, your employees, your family).  

 

The four "D's" are:

• Death
• Disability
• Divorce
• Disagreement amongst partners 

You, and your partners need to have a clear action plan and a shareholder's agreement that would address these issues. You should have a plan to ensure there are systems and processes that run the business without you. But even with the best systems, there will still be some decisions and work that only the business owner can do. Therefore, it is essential you have back-up plans and contingencies to ensure the on-going survival of the business even if something catastrophic happens to you.

 

Specific questions to ask yourself:

• What would happen if you die or become disabled?
• Do you have a plan to retain key employees?
• Do you know what your business is worth?
• Do you know how to increase its value?
• Do you have a Buy/Sell agreement if you have partners?
• Do you know where the money would come from to finance that acquisition?

If you are interested in discussing succession planning for your business, contact us at 204-478-7266x110.