Keeping It confidential
Some businesses, such as historic landmarks or famous establishments, can actually benefit from publicly announcing that they’re for sale. Yet, for most businesses, maintaining confidentiality can be extremely important in the business sale process. It is important for reaching your exit goals and for the post sale success of your business. If word gets out to your creditors, customers, competitors, or employees, this could trigger a negative reaction, weakening your business momentum and therefore its value. Moreover, prospective buyers may become hesitant about purchasing your business if they feel sensitive information has been shared with others.
Once you start marketing your business for sale, confidentiality can be tricky, but less so if you are working with a business broker. Business brokers are experienced at fielding inquiries from would-be buyers and reaching out to prospects without ever mentioning you or your company’s name. Yet, if you’re selling your business on your own, there are several steps you can take to ensure word doesn’t leak out prematurely.
Here are 7 steps you can take to ensure confidentiality when selling your business!
1. Prepare a Non-Disclosure Agreement (NDA) in advance
Have this ready for presentation to qualified buyers. You can usually find sample agreements online or work with your attorney to formulate your own. Don’t provide any details or specific information that could identify your business prior to the buyer signing this agreement. It’s important to include a clause that ensures confidentiality from both parties, plus an expiration date on the agreement.
2. Use blind ads when advertising your business
Do not share your personal contact information or business name when you advertise your business for sale. You can reveal this information after obtaining the confidentiality commitments. A blind ad will lead with a headline that promotes the strength of the business, instead of its name.
- Create a separate email account with a non-business address to disguise yourself with all buyer inquiries. For example, set up an email account called
- When placing the ad in traditional print media, use a media-provided P.O. Box.
- When using online business-for-sale sites, use the site’s identity-protecting features.
- Set up a phone number that is not connected to you or your business in any way. You don’t want prospective buyers contacting your employees, and you certainly don’t want to be identified by your competitors.
3. Pre-qualify buyers before sharing sensitive information
Screening potential buyers protects your confidentiality as a seller. Do not hesitate to ask a prospective buyer about their financial and business background. Qualified buyers expect you to screen them before sharing sensitive information; they are serious shoppers and are ready to provide this information and move on to the next steps. Additionally, qualified buyers prefer that information about your business remain private because they want to know that the business they are buying has taken steps to protect its trade secrets and financial information. An effective method of screening is to formulate your ad with response requirements in a way that helps unqualified buyers opt themselves out. Ask them to describe their purchase intentions and qualifications. Prior to talking with potential buyers, prepare a form to record information about them, as well as a short script to help you answer their questions without divulging the identity of your business. Set up a fair exchange of information. Keep in mind that it’s not unusual to have at least a 50% drop-out rate after the first round of communication, since this is the beginning of the process of narrowing down the field to qualified buyers.
4. Prepare an Information Memorandum and number the copies
Once you’ve determined if someone is a qualified buyer and they’ve signed your confidentiality agreement, provide them with an information memorandum containing a unique identification number for tracking. A seller memorandum is a thorough overview of your business and why it’s a good purchase prospect. This is often referred to as a selling memo, a confidential description book, or an offering memorandum. In the footer of each page, add a reminder that access to the document is governed by the terms of the confidentiality agreement and that there will be legal consequences to any breach of that agreement.
5. Obtain a signed letter of intent
Always disclose information about your business in phases. Even with a signed confidentiality agreement, you shouldn’t share proprietary information, client lists, or trade secrets about your business. First and foremost, the buyer must demonstrate their purchase ability and their intent to make an offer.
6. Never hold meetings at your place of business
Always meet off-site. An ideal place to meet would be at the office of your broker, accountant, or attorney.
7. Involve as few people as possible
You may require the assistance of a few key employees to assist you in assembling due diligence, or a buyer may want to meet the team. Nevertheless, it’s best to limit the number of personnel involved and explain to them the downside of a confidentiality breach.
As you follow these steps, remember to deliver information about your business confidentially and in phases. Start by sharing a brief description of your business in your blind ad. As you screen inquiries and filter out unqualified buyers, take all the necessary steps to ensure confidentiality as you disclose more details to serious buying prospects. Balancing questions from buyers and maintaining confidentiality can be difficult, yet, proper preparation can ensure the sales process goes smoothly.