If you are new to the business buying process, there are several steps that can seem very uncomfortable – like having to give potential sellers, business brokers and your possible new landlord access to proof of your finances (so those involved in the transaction can see proof that you can, in fact, afford the business you are about to buy). While initially unpleasant these steps are critically important for a successful business purchase.
One of the steps for new buyers that can seem unpleasant is the signing of non-disclosure agreements, or NDAs – but it is also one of the most important.
What is the NDA and why do you need to sign it?
The NDA is an agreement that says you will not disclose any of the information you are about to be given on a particular business – including the fact that it is this particular business that is for sale. Each business you request access to will require it’s own NDA, so the longer you shop for a business to buy, the more NDAs you will have to sign.
Confidentiality in business sales is of the utmost importance, so for the protection of the business and the protection of the seller the NDA is a must before any information is given to any potential buyer. It provides the seller of the business with legal protections – meaning legal consequences for a careless buyer who discloses anything about the business to someone they shouldn’t, even telling someone inappropriate that the business is for sale. Without this confidentiality people like the staff, the customers and the vendors might think the business is for sale because it is on the brink of failure (almost never true when a business is for sale) and will leave the business for better prospects somewhere else.
The importance of non-disclosure means if you as a buyer are uncomfortable with signing the NDA, you aren’t going to be able to buy a business. The NDA can’t be changed to suit your tastes, it can’t be amended to take the legal risks for you away – it is what it is. Sign it or don’t, but no seller in their right mind will allow a buyer anywhere near their business or their books without this all-important legal protection.
If it is the legal repercussions you are concerned about – you shouldn’t be. All you have to do is keep the information you are given to yourself. That’s it. If you tell your neighbor’s wife in a casual conversation at the mailbox that the business is for sale or you talk to your barber about the last three years of tax returns you’ve been shown – those potentially devastating disclosures will land you in hot water. If you talk to your broker, your attorney or your CPA about this business you are thinking about buying – there will never be a need to enforce the legal repercussions of the NDA.
NDAs are good for you as a buyer because they keep all potential businesses on the market safe from the disasters an inappropriate disclosure can cause. You don’t want you brand new business adventure to have been damaged by another careless buyer. You also want access to all of the proprietary and financial documentation possible before you buy so you can sure about your purchase before you write a big check. The NDA provides for both.
Don’t be nervous about signing the NDA, as long as you do what’s asked of you by keeping the information to yourself – it will get you one step closer to owning your own business.
Do you have questions about the legal repercussions of the NDA? Would you like to know more about the process of buying a business? Ask us! Please feel free to leave any comments or questions here and we will be happy to help.
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