Getting your business ready for sale isn’t as simple as just putting it out there, publicly advertised for the world to see. While letting as many people as possible know about it might seem like the best way to expose your company to more buyers, it can actually harm a business, disrupt its daily operation and diminish its value. This is why it is so important to list your business confidentially and to know what information is safe to disclose and when you can disclose it. A business broker is experienced at helping you do this while protecting sensitive data. It is one of several benefits of hiring a business broker over a real estate broker when selling a business.
The Significance of Confidentiality
Information about a business going up for sale will peak the attention of anyone who has a relationship with the company. For some, like employees and customers, this may create a feeling of uncertainty. Customers may wonder if the new owner will provide the same level of service or prices that they have gotten used to, and may become more open minded to switching to a competitor. At the very least they will become leery of the future quality of the business. The impact on customers is more profound in certain industries, such as those which are business-to-business. Employees’ uncertainty will be related to their own future and it may cause some to begin pursuing employment elsewhere. For others, it could even affect their work ethic, or job satisfaction.
A lack of confidentiality could also shift a competitor’s attention towards your business. An opportunistic competitor may try to poach your customers and spread news of the sale to further weaken the business. This lack of confidentiality can have a negative impact on the company’s cash flow and cause potential buyers to lose interest and walk away. If a buyer sees that there is volatility or unrest within the business, it will definitely weaken their confidence in the potential purchase.
Using a business broker to list your business solves the issue of the news of the sale becoming public. Brokers are experienced at marketing businesses for sale without revealing sensitive information, while still pursuing qualified buyers. They know how to list a business and attract attention to the listing without disclosing its identity right away.
What Has to be Disclosed?
A prospective buyer will want to know as much as possible about the financials and day-to-day operations of a business they are interested in buying. They are making a significant investment and will be looking for any details and information that could help them to make a decision about purchasing. This includes profit & loss statements, cash flow and vendor contracts, to name a few. You must be careful about handing this information over to any buyer, even if they are thoroughly vetted. Some will not stop with what you provide them, and may do some investigating themselves. Besides gaining knowledge about the inner workings of your business, a buyer could use information you give them to contact vendors or other people that have a relationship with the business, or spread their new found knowledge about it. This is why it is absolutely critical to have all buyers sign a Confidentiality Agreement before sharing any sensitive information about a business.
A Confidentiality, or Non-Disclosure agreement is an important precursor to discussing details of a business listed for sale with an interested buyer. It prohibits the buyer from sharing sensitive data about a company, usually for a specific time, sometimes asking them to destroy or return information at the request of the seller. It restricts them from discussing the business or its potential sale with employees, vendors, suppliers or customers. Business brokers have a standard Confidentiality Agreement that they require all interested buyers to sign before disclosing any information or the identity of the business. During this process they also pre-qualify the buyer to see how likely they are to purchase the business based on their financial situation and professional experience.
Among other details that a seller may share with the buyer would be warranties and indemnities. Warranties include factual information about the company and indemnities are promises made by the seller to reimburse the seller if certain things cause a loss to the buyer. These both offer the buyer a certain degree of protection, but could make the seller vulnerable to claims from the buyer post-sale. Once again, a business broker can advise the seller on whether warranties or indemnities are necessary, and what needs to be included or disclosed to the buyer, helping the seller to avoid potential liability.
Why Hire a Business Broker?
While it is certainly possible to sell a business publically, it comes with certain risks. Besides the aforementioned reasons, it could heavily interfere with day to day operations, which in turn, could also affect a business and its value. It’s also important to recognize that selling a business is often a slow process, so keeping the sale public knowledge for an extended period of time can not only affect value, but also income. Hiring a business broker to help sell your business helps to appease all of these issues.
A broker has procedures in place for how and when to disclose information about a business for sale in the process of finding buyers. They act as a barrier between the business owner who is selling and potential buyers. This makes it much easier to continue to run your business while they do the work of selling it, and to avoid extra stress or fear of making a costly error. Business brokers are also experts at finding value in businesses of all industries and sizes, so they could potentially help you sell your business for more than you thought it was worth, helping their service pay for itself.
If you have been thinking about selling a company you own, consider the importance of doing it confidentially. If you have questions about the sale process, CIBB is here to help you figure out if selling is right for you. Contact us and begin with a free, no-obligation business valuation estimate to see where you stand.