Preserving your Confidentiality

Your business depends on the continuity and trust of your staff, customers and suppliers alike to your business running smoothly. Knowledge of an upcoming sale can undermine this trust and result in unwarranted disruption to your business at a time when it is more important than ever to present a well-functioning business to prospective buyers. When employees, competitors and others find out that you intend to sell your business, the consequences can sometimes be extremely negative. They can go well beyond simply putting the sale of the business at risk. Other problems can occur as well. Here are some of the reasons why a confidential transaction is so important when a business is for sale.

• Employees: Job security can be threatened and employees can quit. Morale and motivation can be negatively affected, which can impact the success of your business.
• Customers: Customers and clients may worry that the company will not be able to maintain service levels after a sale and may take their business elsewhere.
• Suppliers: Suppliers may demand faster payment or may limit credit, which can cause cash flow problems, thereby affecting the profitability and ultimately the value of your business.
• Competitors: Competitors may warn your customers of your intentions to sell, and may actively pursue your customers. Trade secrets can also be revealed.
• Landlords: Landlords may become nervous about a sale and may refuse to cooperate with prospective buyers.
• Creditors: Creditors may withhold new credit, thereby affecting your business’s profitability and cash flow.

When selling a business, both the buyer and seller have an interest in preserving the value of that business. At Twelve31 Advisors, we believe a confidential transaction can help you to do just that. Here are some of the steps we recommend to both improve the sale and make sure it remains confidential.

• Marketing: Twelve31 Advisors can produce marketing materials for your business that limit identifying information. The location of the business can be disguised, as well as other sensitive details.
• Prescreen Buyers: Buyers should be financially and operationally prescreened before they receive confidential information about your business.
• Trade Secrets: Highly sensitive information, such as trade secrets, should be released in later stages of the deal, and only if absolutely necessary.
• Key Employees: The sale should be discussed with key employees, and plans should be made to retain key employees after the sale.
• Confidentiality Agreements: Employees should be asked to sign confidentiality agreements, or if appropriate, employment agreements.
• Employees: Buyers should not speak with employees prior to a closing. Doing so can result in a loss of employees if the chemistry is wrong.
• Confidentiality: Only inform the necessary people, such as your accountant or attorney, about your plans.
• Advertising: Do not identify your business name when advertising it for sale.
• Limited Information: Only provide the buyer with information that is critical to the sale, such as the company’s revenue history. For example, it’s probably not necessary to release information about your customer base.
• Buyer Confidentiality: Each buyer should be asked to sign a confidentiality agreement before the name of a business for sale is disclosed to them, further binding them from divulging any and all information regarding your company or its sale.
• Buyer Qualifications: Request that, along with the confidentiality agreement, a potential buyer complete a “Buyer Information Sheet” with some basic information about their business experience and finances. This sheet will allow you to learn more about who you are dealing with. Just as important, it can help to weed out weak prospects because they will either refuse to provide the information or will honestly tell you that they have no cash and bad credit.
• Document Confidentiality: Proprietary information, such as manufacturing processes or recipes, can add tremendous value to a business. As a result, this information, along with your tax returns, financial statements and client lists, should remain confidential until the appropriate time.
• Limit Communications: You must demand that buyers only talk to you (and not to your employees) throughout the sale process.