We often talk about confidentiality as it relates to business sales – here on our blog, with our clients and with prospective clients. Whether you own a business you are thinking about selling or you own a business you aren’t planning to sell for the foreseeable future, thoughts about confidentiality should carry the same level of importance.
Keeping the fact that your business is for sale a closely guarded secret is critical – both to the success of your business sale and to your bottom line. Confidentiality breaches have caused key employees (or even an entire staff) to quit and take their regular clientele with them, have caused contract customers to cancel those contracts – the list goes on and the effects can be devastating.
A good business broker is going to work very hard to maintain confidentiality on their end, but many times it is the seller themselves who ends up disclosing the sale – without realizing at the time the consequences of their actions.
What follows is an example of one of these seller mistakes, with the hopes that by telling this story future sellers will know and avoid these unnecessary pitfalls.
Keeping Family Out Of The Loop
The seller of a resort restaurant put the restaurant on the market, and followed the broker’s advice about keeping the staff in the dark. She did, however, tell the members of her extended family about the sale. One of these family members, a niece, had just taken the real estate license test and was eager to help her aunt with the sale. Unfortunately, the newly-minted real estate niece was too new to the industry to know the proper confidentiality protocols that are necessary when selling a business. She was frustrated by what she perceived was a lack of marketing on the business broker’s part because she wasn’t seeing her aunt’s business listed on places like Loopnet or the general MLS. Her inexperience told her that the broker should be treating the sale of the business just like you would the sale of a house, so she took it upon herself to post information about the business – including the name, address and pictures of the signage – on the general MLS, so anyone in the world with an internet connection could now find out that the business was for sale. She also told other real estate agents in her office, her clients and her friends about the for-sale status of the business.
Needless to say, it didn’t take very long for the staff of the restaurant to find out about a possible sale. Most of the staff didn’t return to the business during the busy season when the owner needed her veteran servers and kitchen staff most, opting instead to find more “stable” work at other establishments. The seller is now contending with high employee turnover and constantly training new staff at a time when her focus should be on growing and strengthening her business to attract buyers.
While it might seem odd at first to keep your family members in the dark about your business sale, avoiding the devastating effects of a breach in confidentiality will far outweigh any hurt feelings keeping them in the dark might cause.
Do you own a business but don’t think it would be possible to keep your family out of the loop? Do you have more questions about how to keep confidentiality in place? Ask us! Leave any questions or comments here and we would be happy to help.
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