Confidentiality in the Business Sale and Why is it so Important
When you are buying or selling a business confidentiality is one of the most important factors. Now to the novice negotiator, buyer or seller with a lack of experience or understanding of all the things that can go wrong you may find that odd but let me explain.
First….the sale of a business is a private matter and the only people who should be involved are those necessary: Buyer, Seller, Broker if there is one, CPA’s, and Legal Counsel. That’s it. No one else has a need to know. As a seller who spends a lot of time with employees, there is often some emotion and misguided feelings of emotion/loyalty borne out of concern for your staff. But I would charge that to be misguided. Here is how sellers should look at the deal: Employees should be focused on their job and job alone. The sale is to be handled by the players hired to manage the transaction. Any time or effort spent on things other than core job elements is a waste. In addition given the volatility and ebb and flow so common to deals, there are uncertainties that will drive emotions to a fevered pitch at a time. Professionals experienced in deal flow are accustomed to that dynamic. A staff member who has not experienced that flow will inevitably be off their game and subsequently not focused on their job. The negative result of that lack of focus could impact the results and therefore put the deal in jeopardy for survival and consummation.
In addition, including parties greater than those necessary increases risk of information leaking (think of Washington D.C. ) and getting in the hands of those you certainly would not know: Customers, Competitors, Vendors, Landlords, Ex- Wives, Divorce Attorneys, etc. A Non-Disclosure Agreement (NDA) will save you the headache of having any proprietary information leaked and getting into the wrong hands.
What does a confidentiality agreement entail?
A confidentiality agreement is a contract that requires two parties to keep information confidential for a defined period of time. In the case of a business sale, this often means two years, or until the sale has been made public to employees, competitors and other shareholders. However, these agreements can stipulate that any proprietary information shared at any time is considered to be a breach of contract. The time frame must be specified on the contract before it is signed by both parties. Once a confidentiality agreement is signed, all elements of the sale will remain private. This is crucial if you hope to keep negotiations secret.
In addition to time, it might be worthwhile to include a venue clause in the confidentiality agreement. If a state law governs these types of agreements, then you’ll want to make sure it is in a venue your counsel is familiar with. Most often it is the state and county the business is located in.
Loose Lips Sink Sales
If a breach does occur, DON’T PANIC. The great news about using Transworld is, we help people expand their businesses through franchising. You could always tell people you hired Transworld to help you open new markets.
If a breach does occur, DON’T PANIC. The great news about using Transworld is, we help people expand their businesses through franchising. You could always tell people you hired Transworld to help you open new markets.
But if you want to take legal action, you will have to be able to prove damages. Which can be difficult.
However, a surefire way to avoid any breach of confidentiality is to control the amount of information that is disclosed in the first place. You want to limit who gets the information and make certain your buyer is genuinely interested, qualified, and eager to make a purchase to begin with. It is in your best interest to keep information confidential for as long as physically and legally possible. Michael Shea of Transworld Business Advisors advises that “. . . buyers and sellers should expect to keep everything confidential except to specific advisers (CPA, attorney, bankers) until the day after the closing and perhaps indefinitely.”
Michael Shea P.A. is one of the most experienced and professional brokers in the industry having executed over 250 transactions. Advising on a number of business sales, a broker can be your second set of ears and eyes when ensuring a buyer is legitimate and ready to make a deal. Our brokers understand the importance of business sale confidentiality and make it their priority.
If you are considering the sale of your business, contact the experienced professionals at Transworld Business Advisors – we will ensure you receive the proper guidance throughout the sale of your business, including the signing of an appropriate confidentiality agreement.
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