Our latest news and analysis.

Confidentiality And Selling Your Business

Managing confidentiality effectively is a key component of any successful business sale process. As you negotiate towards that large payout it can become increasingly difficult for you to contain your enthusiasm, let alone curtail the thoughts and opinions of those around you.

When you break it down selling a business is change and people by enlarge do not respond well to it. Especially big change. What may appear to be a straight forward transaction to a business owner can be a seismic shift to related parties. There is simply no way of anticipating the impact.

Think about it. News of an impending business sale could trigger a whole range of unpredictable reactions from customers, employees, suppliers, competitors, the media and other groups that could damage the sales process. Panic and uncertainty in particular are hard emotions to contain once they have left the station.

At some point business owners need to be prepared for word to get out. Confidentiality, when done right, puts control firmly in their hands. Owners need to take confidentiality seriously to ensure that their business can continue to perform throughout the negotiations.

Confidentiality – Establishing The Cone Of Silence

In addition to engaging an experienced advisor to manage the sales process, there are some simple steps that business owners can take to protect confidentiality. It can all sound a bit ‘cloak and dagger’ but devising a confidentiality plan is critically important.

Here is a list of some confidentiality precautions:

  • On a need to know basis only – People talk, so it is critical that you be careful who you speak to. Obviously you need to discuss details with partners, board members, or perhaps accountants or lawyers, but anyone outside this inner circle should probably be excluded at this embryonic stage. Of course, the decision of who needs to know is different for every business, but the point is to keep the circle tight.
  • Blind advertising & no-name flyers – If you are considering advertising your business for sale then ensure that your ad (whatever form it takes) is written enticingly, but generically. Exclude any specifics that could identify your business or allow competitors to ‘join the dots’ and figure out who you are. In other words, keep the information broad and limit your description to the industry, approximate size of the business, general location, etc. It is also common practice for an advisor to distribute a no-name flyer, or ‘one pager’, to relevant parties on-behalf of their clients. These flyers provides an opportunity to impart more detail information on a business than a mere ad while still omitting company specifics. A no-name flyers has the added protection of having an adviser run the process keeping it all at arms length from the seller.
  • Qualifying the Buyer – Before you reveal your company’s identity it is important to qualify the buyer. In other words, does a potential buyer have the financial means to purchase your business, or are they just on a fishing expedition? Is it just a competitor trying to sneak a peek at your revenues and margins? It happens. If you are going to reveal confidential information, you want to make sure they are qualified.
  • Confidentiality & Nondisclosure Agreement – So you now have some buyer interest. At this point it is imperative that all prospective buyers sign a professionally drafted confidentiality agreement before any information is made available. The agreement should be signed by everyone that will be privy to the information.
  • Drip Feeding Information – Even with a signed confidentiality agreement in place it is important to release company information in phases. You are under no obligation to share trade secrets, deep financial information or client details until the prospective buyer has made a firm offer. The idea is to match the level of detailed information provided to the level of buyer interest. Remember, you are only looking to escalate the information flow with buyers who have demonstrated a capacity to purchase.
  • Protecting Documents and Communications – It is critical that any information you share be appropriately watermarked as confidential with the intended recipient(s)’ names included. The use of document passwords is also encouraged. This acts as powerful warning to anybody who accidentally or wrongfully accesses the information. In addition, all emails should include appropriate legal disclaimers and any “data room” information storage repositories on the web should be protected in-line with best practice.
  • Keeping It Off Site – It seems obvious, but sellers need to conduct all meetings with potential buyer off site. Employees have eyes and it doesn’t take much for them to speculate on why someone might be visiting their offices. Of course, sellers can take this idea of ‘off site’ one step further by ensuring all related communications take place via non-business email accounts and phone numbers.

A Confidentiality Mindset

To make it work, confidentiality requires careful planning, discipline and ongoing review. It is a mindset. Of course, the reality is that there is no way to 100% guarantee it. Anywhere where people are involved human error and behaviour can throw a spanner in the works.

That is why engaging an experienced advisor, someone who lives and breaths confidentiality for a living, is a great place to start. Not only can they help maintain the highest standards of discretion, but they are able to ferret out those “buyers” that are just tyre kickers.

If you would like to have a strictly confidential discussion about how CFSG can assist you in preparing for and successfully completing the sale of your business please contact us on +61 3 8676 0581 or email us at info@cfsg.com.au


Subscribe for future updates