by Dave Driscoll
Confidentiality is an important issue for anyone selling a business. Protecting the identity and confidential information of a seller is very important. Only nonidentifying information should be shared until confidentiality is secured with a prospective buyer through the signing of a confidentiality/ nondisclosure agreement.
Employees and customers are the two main reasons to conceal the identity of the business being offered for sale.
Employees. As business owners can attest, if all employees knew everything that was going on within a business, they would be so distracted that their job performance would be affected. The knowledge that the owner is considering selling the business would likely cause employees to be distracted, speculate what a sale would mean to them and be anxious about whether they would continue to have jobs. All are valid concerns, yet employees can actually be the biggest beneficiaries of a sale.
Consider this: Potential buyers base their buying decisions upon historical performance and what should be achievable in the future. Current employees are the business’s biggest asset, and the new owner will value the folks who are responsible for the current successful performance. In my experience, a sale can provide employees with new opportunities to demonstrate their value, advance with the company and experience enhanced job security. The new ownership’s desire to grow the business is a positive thing for all employees who are willing to work toward that goal.
Customers. It’s a well-known fact that people don’t like change. That includes customers. The customer’s first thought is, “How will a change in ownership affect me?”
A business should not choose to reveal any plans that, in a customer’s mind, would cause concern about his or her future relationship with the company. Depending on the specialization and level of competition/choices within the industry, customers may begin to explore their options by inviting competitors to bid on their work. In a few cases, informing customers in advance of a sale will work, yet it is generally not advisable, as the business’s future sales could be placed in jeopardy, impacting the viability of the business.
But sometimes…
There are exceptions to the rules. In general, maintaining confidentiality is an important aspect of the process of selling a business. In specific instances, however, “going public” with information about the owner’s desires to secure the future of the business will actually positively impact the options for the owners as well as the employees.
Revealing the business’s identity is appropriate only if the company is truly unique with a special, widely recognized value that sets it apart from others in the industry. In addition, the employees must be informed of the owner’s intent to sell before the potential sale is publicized. Employees need to understand the reasons for the sale and their roles as valuable assets to any new owner. The succession to new ownership will offer current employees growth opportunities that the current owner may not be able to provide.
Owners must carefully consider the benefits and risks before discussing the possible sale of their business with anyone outside their most trusted advisers. Protecting the ongoing value of the business is in the best interest of everyone.
Dave Driscoll is president of Metro Business Advisors, a mergers and acquisitions, valuation, and exit/succession planning firm helping owners of companies with revenue from $2 million to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or 314-303-5600. For more information, visit www.MetroBusinessAdvisors.com.com.
Submitted 10 years 117 days ago