If you are new to the business buying game, then one part of this process you may find frustrating is confidentiality.
You are about to spend a very large amount of money – so you will obviously want to know everything about the businesses you are considering, and you want to know it now.
The problem here? Business sales don’t quite work that way. There is a huge need for discretion and confidentiality.
Why does everything have to be such a big secret?
Confidentiality has to stay in place in order to protect the business. If employees, vendors, clients or the competition find out a business is for sale, it can mean big problems for the bottom line. Employees quit, vendors cancel contracts, clients go elsewhere and the competition can move in for the kill.
Why should a buyer care about confidentiality?
One of the reasons that buyers have an issue with confidentiality is it doesn’t initially seem like something they need for their own benefit – it only seems to be in place to protect a seller and the business itself. It’s not. Think of confidentiality this way, you don’t want the business you buy to be in complete turmoil the day you take over, so keeping a tight lid on the for-sale status will be key.
The best way to illustrate why confidentiality is such a massive deal is with an example of what can happen if confidentiality is breached.
A buyer is very interested in a listing for a small restaurant in a downtown location. The buyer gets in contact with the listing broker and signs the necessary non-disclosure agreement. The listing broker then reviews the “rules of the road” – the buyer may not speak to employees, share any financial information, or tell anyone that the business is for sale. The buyer agrees. Since he now knows the name and physical location of the business, he goes in for lunch and asks to speak with the manager. He asks the manager why she thinks the business is up for sale and then asks for a tour of the kitchen. The manager, a key employee, had no idea that the business was on the market. She immediately runs into the kitchen to ask the head chef if he knew anything about the business being up for sale, which, of course, he did not. In the panic this buyer has now caused, both the manager and the head chef quit to find more stable work. Now the business has lost it’s two most important employees and has been left in a seriously vulnerable position.
As you can see, the confidentiality of a business sale is extremely important. This buyer seriously damaged the seller’s business, and he didn’t have to do very much to cause all of this upheaval.
As a buyer, you will be expected to maintain confidentiality all the way up to the closing table. This is critical to the survival of the business and to the sale. The non-disclosure agreements you sign are there for a reason and are absolutely enforceable. If you disclose the business sale to an inappropriate party, you can face serious legal repercussions.
These rules are in place to protect the businesses you are trying to buy. Do your future business favor and keep confidentiality in place!
Are you a business buyer who has questions about confidentiality in the business market? Ask us! Leave a comment or question here, and we will be happy to address any questions you have.
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