Why Confidentiality?

Webster’s Dictionary defines confidentiality as “secret, private; enjoying or treated with confidence.”  Often times an owner looking to sell his business will say to us, I’m ready to sell my business, and I want to tell my employees, customers, and the world.  STOP RIGHT THERE.

We want to maintain confidentiality throughout the entire business valuation and selling process for a number of reasons.  Let’s look at a few groups of people and why confidentiality is so important.

• Employees – Owners will say they value their employees and want to keep them in the loop as they look to sell their business. What happens in that case is that employees, after hearing the business is for sale, will go home that night, write a resume, and look for another job.  If the employee leaves, the owner must spend time and resources to replace the employee.  Our experience has been that when confidentiality has been maintained, most employees will stay.  They know the new buyer has spent a lot of money to acquire the business.  Buyers are not looking at keeping the business as status quo, but are looking at growing the business.  It could become a career development opportunity for employees.  Also, having a strong employee team in place lets a buyer know there are key people in key positions, which allows for a smoother transition between buyer and seller.
• Customers – Customers are the lifeblood of a company. Sometimes an owner has spent months, or even years developing customers.  Whether a customer is short term or long term, they are essential to the profitability of the business.  If confidentiality is not maintained, and word is out that the business is for sale, customers will start to look elsewhere for the products and/or services offered by the business.  Just think, how many people would book a catering hall for an event six months away, if they knew the business is for sale? Customers might also think that just because a business is for sale, that it’s because it’s failing, rather than the complete opposite.  Maintaining confidentiality throughout the selling process takes away the uncertainty customers may have otherwise.  It is also reassuring to a buyer that a customer base exists.
• Suppliers – Like customers, owners have spent much time getting the best suppliers and terms for their business. Maintaining confidentiality helps keep the flow of supplies coming.  Without confidentiality, and the supply world knowing the business is for sale, owners may not get the best shipping.  Favorable terms may not be offered anymore.  Suppliers may require payment up front, impacting cash flow.
• Competition – Even though the business owner has every intention of selling, and wants the business to survive and thrive after the sale, the competition may not portray it that way. Like the old telephone game, the words they may use may not be the same as those they heard.  Also, without confidentiality, the competition may use it as a way to steal employees.
• Lenders – Of course, all lenders want to loan money and get paid back. As with suppliers, customers, and employees, a business owner has worked long and hard to get their financing and working capital in place.  When confidentiality is not in place, a lender may recall a loan, or close a line of credit.  Maintaining confidentiality can help avoid a lending or line of credit crunch.  The loans and lines of credit get paid when the business is sold, but there is no disruption of business financing operations.

In today’s competitive business environment, maintaining confidentiality is of paramount importance.  For many business owners, they have worked and developed their business over many years.  Selling their business is a one-time event.  During the selling process, it is important for an owner to keep their focus on running their business.  Maintaining confidentiality helps avoid potential pitfalls and a smooth transition.