The importance of discreet business selling
Confidentiality is an issue of utmost importance in a business sale. The commercial information released at this time is highly sensitive, and potentially open to malicious use by rival businesses.
Additionally, if stakeholders discover that a business has been placed for sale, lack of confidentiality can threaten its stability, and ultimately the value. Employees and suppliers are just two groups that might view the business in a different light if they’re aware of an ongoing sale process, so what effect could this have on a business for sale?
How could a lack of confidentiality affect a business sale?
Employees
Although TUPE – Transfer of Undertakings (Protection of Employment) - regulations apply to relevant transfers when a business changes hands, members of staff may worry about job loss or legitimate changes to their working terms and conditions, potentially leading them to seek employment elsewhere before the sale.
Suppliers
If suppliers know your business is up for sale, they could apply stricter terms and conditions, or look for new customers in order to mitigate their risk of a changed trading relationship with a new owner.
One of the most important reasons why a business should be advertised confidentially is the risk of sensitive information being released to competitors.
Significant threat from competitors without confidentiality
One of the early documents to be distributed during the sales process is an Information Memorandum, also known as a Sales Memorandum. This document includes financial information and other details that would be extremely valuable to competitors.
If a sale is advertised without a Non-Disclosure Agreement (NDA) in place, interested parties could use the information for their own benefit, with no legal recourse for the selling business owner.
So how can a business be advertised for sale confidentially when significant marketing and promotion needs to take place?
How to protect a business sale with strict confidentiality
A Non-Disclosure Agreement (NDA) is a legally drafted document that prevents interested parties from disclosing or using the information contained. A business might use processes or software that provides it with a competitive advantage, for example, and an NDA protects that.
The misuse of this type of information by commercial rivals can severely damage a business for sale, and even create a trading environment that’s no longer sustainable. So, what should an NDA cover in order to safeguard highly valuable business intelligence?
This depends on individual businesses and where their risks lie, but in general, an NDA should cover the following so that a business can be advertised for sale in a confidential manner:
- Financial information
- Databases
- Details of employees, suppliers, and customers
- Bespoke software, newly developed technologies, or those in the process of development
- New service offerings or products
- Business strategies and plans
How does an NDA work when selling a business?
When a party expresses an interest in the business for sale, a Non-Disclosure Agreement is sent out prior to the release of the Sales Memorandum. The NDA is signed by the interested party and the seller.
The NDA should:
- Name the parties to the contract
- Detail the information that must remain confidential, and how it can be used by the recipient
- Specify the period of time the information must remain confidential
- State to whom the interested party can legally disclose the information – their accountant or solicitor, for example
If a business isn’t advertised for sale confidentially, its sensitive commercial information is at risk of misuse. This could lead to a lower final value, which is why it’s advisable to seek professional help at this time.
A professional business sales broker will not only ensure that trade secrets, goodwill, and business data are protected, but also provide invaluable support for a smooth selling process.
At Selling My Business, our team of expert business transfer agents understand the importance of directing a confidential sale and have set procedures in place to ensure discreet selling. We can assist you in the production and development of NDAs to protect company identity and financial information in the event of an expression of interest. For more information, get in touch with a member of the Selling My Business team.
