When selling a business, maintaining confidentiality is critical. There are three main reasons a confidentiality agreement is an absolute must for all business sales, and it is important for any business owner to understand why. The main purpose of a business sale confidentiality agreement, also called a non-disclosure agreement, or NDA, is to protect the intellectual and property rights of a company that is for sale. Do not underestimate the necessity of confidentiality for the following purposes:
1. Secure Sensitive Information
Prevent harmful disclosures, whether intentional or unintentional.
When selling a business, prospective buyers will need to review sensitive information about your company in order to confirm its value and decide if they want to buy. Even if you are preparing to negotiate with a good friend or family member, never disclose financial, client, or proprietary information without first obtaining a signed business sale confidentiality agreement or NDA. If confidentiality is not maintained, competitors can try to use the leaked information to sell against you, or potential buyers can be turned off for fear that too much sensitive information has been reviewed by other parties. This is not a matter of being suspicious or cynical; this is smart business, and a serious buyer will expect you to require an NDA. In the agreement, you will want to expand the scope of what would naturally be considered confidential and include as much information as possible. The broader the agreement, the more information that is protected.
2. Ensure Discretion During Sales Process
Public knowledge can create uncertainty & decrease business value.
Openly sharing your intent to sell carries a host of negative repercussions. Here is a good time to point out that while you may consider the prospective sale of your business to be something you want or ought to share with family and friends, they likely do not understand the consequences of disclosing your intent to sell. Consider the effect this information will have on customers and employees. If customers hear that your business is for sale, they may lose confidence in your ability to serve their needs moving forward and begin to shop around. If employees hear that you might be selling, they may question the stability of their employment and begin to look elsewhere. Even worse, a competitor may use the information to try to swoop in and pick up your best clients or team members. Working with a business broker within the bounds of a business sale confidentiality agreement is the most reliable way to maintain confidentiality during the sales process.
3. Protect Details Post-Sale
Maintain confidentiality about price and other sensitive details regarding your exit.
Many business owners prefer to keep the financial details of their sale private. A business sale confidentiality agreement can mandate that certain non-disclosure requirements apply to a buyer even after going through with purchasing the business. Consider the effect that potentially disclosed information will have on your exit plans, and draft the scope of your business sale confidentiality agreement accordingly.
Considering the importance of confidentiality in the sale of a business, it is worth stating that professional representation is the most reliable way to maintain confidentiality while selling a business. To learn more, contact us today for a no-cost, confidential initial consultation and valuation.