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.
Putting The Customer Before The Business
The owner of a small home cleaning business was looking to sell, but felt he should remain loyal to the contract customers he’d had for many years. He accepted a great offer from a buyer, but as the time for closing approached the seller realized there were some major personality differences between himself and the prospective new owner. Not wanting to upset his customers, he went to each one in turn and told them that he was selling the business, and it was up to them if they wanted to continue with the new owner – but he didn’t like the guy very much. Needless to say, this caused a cascade of canceled contracts and demolished the customer base of the business. Closing day was still a few weeks out, so the buyer ultimately decided to pass on the business because it was now in free-fall. The seller was left to pick up the pieces of the mess he had caused, and now had the vast majority of his original customer base using the services of other cleaning companies – as he had suggested they do before his business ended up right back in his lap.
It might seem like your loyalty to your customers is what’s most important, but you won’t have a business if you put their perceived and unknowable future happiness before the health of the business itself. The seller in this case had no way of knowing what kind of job the future owner would do, and he should have held his tongue about his personal feelings in a business transaction, as the personality clash in this instance had nothing to do with the new owner’s abilities. The seller is now unable to retire and instead must spend the next few years trying to rebuild what he lost.
Don’t make this mistake and disclose the sale to your customer base before the deal is closed. You have to remember that selling your business means that they aren’t going to be your customers anymore, and it is in the best interest of the business itself to maintain confidentiality all the way to the end.
Are you thinking about selling your business and are worried about your customers with a new owner? Do you want to know more about how to keep confidentiality in place? Ask us! Please feel free to leave us questions or comments here.
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