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Confidentiality: Every Seller’s Concern when Selling a Business

Protect the asset value of your business with an intentional process to maintain confidentiality

St. Louis Consulting Services

By Dave Driscoll

Every business owner is keenly aware of the need to protect their business’ confidential information. We carefully guard the processes, procedures, client lists, and financial information of our business. 

Maintaining and enhancing your vigilance regarding confidentiality is imperative when selling your business. Your company’s asset value must be protected from the start of the process until the day of closing. Remember, asset value includes your brand/reputation, and relationships with your clients, employees, and vendors, as well as your processes and procedures.

Owners who want to sell their business often stall instead of moving forward with the preparation and sale because they are worried about sensitive information “getting out” to competitors, clients, and the public.

When representing sellers, an intermediary or broker’s sole objective should be to protect the seller’s interests. That protection should include a highly-refined, repeatable marketing process designed to limit the release of company information to only those who have been vetted and agreed to keep all information received confidential.

As the first interaction, a prospective buyer must agree:

  • that the identity of the seller and all information provided by broker and the seller (including the fact that the business may be for sale) will be deemed CONFIDENTIAL.
  • not to disclose this information to anyone, except legal and accounting advisors who are bound by their professional code of ethics regarding confidentiality.
  • to require other advisors/ individuals with whom they confer to sign the confidentiality agreement.
  • not to use the confidential information in any way that could be detrimental to the seller or to the fiduciary relationship with the broker.
  • and acknowledge that any breach of this agreement, directly or indirectly, shall be deemed irreparably harmful to the broker and the seller, and that all remedies at law or equity will be made available to the broker and the seller for any breach or threatened breach.  

Second, a prospective buyer must provide enough detailed financial information (personal or company) to demonstrate the buyer’s ability to consummate a transaction of the size anticipated. Information should include:

  • Sources of down payment – cash assets, value of retirement accounts, and/or value of investments including real estate and other tangible assets.
  • All sources of income.
  • Liabilities such as mortgages, auto loans, notes payable.

As the intermediary’s foremost responsibility is to protect the seller, if a prospective buyer is unwilling to provide information to demonstrate a reasonable financial ability to transact, the process should stop without releasing the company’s identity or any other information.

If the prospect agrees and signs the Non-Disclosure/Confidentiality Agreement and, in the broker’s reasonable opinion, does have the ability to transact, additional limited information will be released about the business for sale. This level of information may include the company’s identity, location, history, industry, current condition, future opportunities, revenue and cash flow, and the reason for selling. Essentially, enough information is shared to give the prospect a high-level understanding of the business and industry.

Following a process to secure Non-Disclosure/Confidentiality, confirm the reasonable ability to transact, and progressively release information is necessary to protect the seller and the company’s asset value. With this reassurance, sellers can feel comfortable moving forward with the sale of the business, likely their single largest asset.

Dave Driscoll is president of Metro Business Advisors, a business brokerage, valuation and exit planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600. www.MetroBusinessAdvisors.com

As seen in Dave Driscoll's column in St. Louis Small Business Monthly
As seen in Dave Driscoll’s column in St. Louis Small Business Monthly

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