Why is confidentiality important in selling a business?

Keeping the sale confidential until the right time will help you reduce uncertainty and maximize the ultimate selling price.

FAQs: Why is confidentiality important in selling a business? | What is the value of using a business broker? | How can I increase the value of my business? | What's involved in preparing a business for sale? | Why is succession planning important? | How do I accommodate a buyer who has limited cash? | What does due diligence encompass? | How long will I have to stay on after the sale?

When you put your house on the market, you get the word out to as many people as possible. The “For Sale” sign is placed in the front yard, you invite people to an open house and you put ads in the newspaper and online. You want everyone to know your house is for sale.

That’s not the case when selling a business. Placing an ad that your business is on the market creates uncertainty that can hurt your bottom line and put the company in jeopardy.

To sell a business at its optimum price, keep it confidential!

What’s likely to happen if people find out the business is up for sale?

Employees Get Nervous. They worry that they will lose their jobs or that they won’t get along with a new owner. Some employees - perhaps your best ones - may even quit before you have a chance to reassure them. Losing key people is serious, particularly during the sale process. Key staff members provide valuable continuity and business knowledge that buyers are looking for. Lose them, and potential buyers may be lost too.

Customers Begin to Wonder. They may assume that your business has problems that could threaten their supply chain. They may worry that they won’t get the same quality of product or service from the new owner.

Competitors will spread the word. Once the competition finds out, they’ll tell your customers and use it as leverage to bring that business to their company. It opens the door for them to steal business from you.

Vendors and Creditors May Tighten Terms. You may be working with terms of net 45 or more to benefit your own cash flow. But once creditors learn that your company is in play, you may find those terms tightening or notes called due.

On average, a business sale takes nine months to one year. If even just a few of these changes occur early on, the impact can be dramatic. You’re not only running a business; you’re a fireman, busy putting out fires.

A buyer wants a successful operation with few changes until he or she can make them. Too many question marks mean greater risk and lower offers.

Confidentiality is critical no matter the size of the company or the type of business. To maintain confidentiality, use a professional intermediary who understands the process and will market the business in a confidential manner, while providing the right kind and amount of information to attract “best fit” buyers.

The intermediary can screen inquiries to ensure that competitors aren’t fishing for details. The intermediary should only share your identity after concluding that a potential buyer is qualified and serious. Such prospective buyers should also be required to sign a binding confidentiality agreement that holds them accountable for any leaked information.

You want to maintain your business as usual for as long as possible. Keeping the sale confidential until the right time will help you reduce uncertainty and maximize the ultimate selling price.