Maintaining Confidentiality When Selling Your Business

By Andy Kocemba

One of the primary concerns of any business owner interested in selling their company is how to keep their actions confidential. They might say, “I don’t want my customers to know I’m thinking of selling” or “My employees can’t know what I’m planning.” While a business owner ultimately has to be prepared for word of a potential sale to hit the street, there are ways to manage the sale in order to maintain confidentiality as long as possible.

  1. Blind Advertising: Any advertising on a business that is for sale should be “blind advertising.” The goal of blind advertising is always to drive inquiries, not to reveal the business. Ads should be written generically, stating the industry, approximate size of the business, and possibly general location, but nothing that would lead anyone to know specifically what business is for sale. Depending on the industry and number of similar businesses in the geographic area, some of these ads can be more specific than others, but always ask yourself, “Can someone tell who I am based on this ad?” 
  2. Confidentiality Agreements and Buyer Qualification: Once you are attracting the attention of potential buyers, it is imperative they sign a legally-approved confidentiality agreement before any of your information is released to them. If your sale is being managed by a broker or M&A professional, this form will be signed before they even reveal the name of your company. This is also the time a buyer will be qualified to see if they have the means and the ability to buy your business.  If not, there is no need to release any confidential information to them. 
  3. Be Ready to Answer: Ultimately, customers and employees may start asking you if the business is for sale. This question may be innocent enough, so it is best to always have an answer ready for anyone that brings up the subject. My favorite strategy is to play it off in a lighthearted fashion. Responses such as “Everything’s for sale for the right price” or “Did you bring your checkbook?” defuse the situation pretty quickly, and put the pressure back on the asker of the question to reveal their motives. 
  4. Manage the Process: A signed purchase agreement doesn’t mean the need for confidentiality is over. Make sure you and your buyer have a clear understanding of when employees will be told of the sale. While some key employees may need to be drawn into the process earlier on, it is generally best to wait as long as possible to tell employees a business is being sold, often sharing the news after closing the transaction. Until ownership is officially transferred, you never know what might happen, and a deal might fall apart. In that case, it is best employees and customers not be aware.

Remember that maintaining confidentiality through the selling process is important, but it is not an all-or-noting scenario.  These tips can help you maintain confidentiality by knowing what to share and say, and when. Brokers and M&A professionals can guide you through this process and lead you to the best results.

Takeaways:

  1. You never know what might happen when closing a deal. It may be better that customers and employees not be aware of a sale until it is closed.
  2. Brokers and M&A professionals can help you know when and how to inform employees and customers about a sale.
  3. Interested buyers should sign a confidentiality agreement before learning the name of your company.