The Importance of Confidentiality

When buying or selling a business, all matters should be kept confidential until the buyer and seller have closed the sale. From the onset, one of the primary concerns of business owners interested in selling 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 the word to hit the street, it is critical to manage the sale in order to maintain confidentiality as long as possible. Mutual Growth Brokers are well versed in these areas of confidentiality.

Most businesses sold are profitable and doing well, but sometimes, people can assume that because it's selling- that it's failing and going out of business. As mentioned, owners have a fear and there is a risk of losing employees. If they were to find out, employees could look for another job or leave while the owner is trying to sell or while in the process of selling. There is no guarantee employees will stay after the sale, but most will be happy to remain in their current jobs. Customers may worry about the unknown and move on to similar businesses. Whether you are the buyer or seller, you would not want either of these to happen, as they would have an impact on the value of the business.

When a business is put on the market to be sold, MG Brokers give generic information and not information that will show the location or name of the business. You will be able to see generic information about the types and sizes of businesses in which you might be interested. When you find one that seems to fit your expectations,your MG Broker will ask you to sign a Confidentiality Agreement, allowing your broker to give you a packet of information about the business, including the name and location. It is critical that you abide by the Confidentiality Agreement you have signed. Not only does it hurt the business owner to have the possible sale publicized, it also hurts the buyer. You want the operation of the business to continue strong so that you can just walk in and begin to make profits immediately after closing. At that point, the seller and buyer will meet with the employees; and the seller will also introduce the buyer to the vendors, suppliers and others that are involved with in the operation of the business. Sometimes buyers need to meet with suppliers to get their credit approved, but the suppliers are often familiar with the importance of confidentiality. Of course, there are others who must know the business is selling, like the banker, landlord, franchisor, accountant, insurance agent, etc.; but their jobs require them to keep everything confidential. When you sign, you pledge you will not, without written consent of the business, furnish, copy, reproduce or distribute, in whole or in part, directly or indirectly, the information to anyone, except your financial advisors and investors, who may be furnished with the information for the sole purpose of advising you as to the structure of any proposed purchase of the business.

When you sign a Confidentiality Agreement, you are stating you will keep confidential all proprietary information made available to you regarding the seller and the business. This will include financial information, inventory, asset and equipment lists, trade secrets, customer and vendor lists, and employee information. There is usually a time period, like three or five years, that you will not disclose any of the proprietary information to persons or entities other than your employees or representatives actively and directly participating in the study and evaluation of the proprietary information for any purpose.

At Mutual Growth, we require that all potential buyers return all information furnished without retaining copies, summaries, analyses or extracts or otherwise dispose of all information. We also ask buyers to agree not to use the proprietary information to harm the business by soliciting its customers and/or employees, or by disclosing the information, or the fact the business is for sale, to any of its competitors, customers or vendors. If you are unable to return the information, your MG Broker may ask you to execute a certification stating that all confidential information not returned has been irretrievably destroyed.

Because of confidentiality, most meetings between the buyer and seller will be after business hours or at a location away from the business. Of course, at least one meeting will be at the business to view the location, equipment, machinery, etc. You should always schedule your meetings with the seller through the business broker and not directly contact the seller, its agents, employees, suppliers, customers and representatives. Again, this will provide much needed confidentiality for you and the seller.

When a prospective buyer signs a Confidentiality Agreement, he/she is not obligated to purchase the business or any of the assets of the business. However, the terms in the agreement are binding. Divulging the business is for sale or any information received about the business’ operations or finances could cause harm to the business and create a cause of action against the recipient.