When I sold my business several years ago, keeping it confidential kept me up most nights. I was equally concerned about keeping clients in the dark and our team from feeling betrayed when they found out. However, I knew I’d need to let all key stakeholders know about the sale at some point. The balancing act was not easy.
Using my experience and lessons learned from working with other small business owners, I’ve created a two-part series on the topic of confidentiality during a business sale. In part 1, I’ll review the risks, benefits, and challenges of confidentiality during a business sale. In part 2, I’ll go over what you can do to maintain confidentiality.
The Risks of Not Maintaining Confidentiality
If you’ve thought about selling your business, I’m sure you’ve thought about the downsides of people knowing about the sale too soon. However, as a reminder, here are some of the risks of premature disclosure:
Employee Instability and Loss
If employees learn about the sale too early, it can create anxiety and uncertainty. Key employees may begin exploring other opportunities out of fear for their job security. It’s a truism in business: the best employees leave first because they have the best opportunities. Keep in mind losing essential staff disrupts your operations and lowers the business’ appeal to potential buyers.
Loss of Customers/Clients
Customers/clients will feel unsettled by the prospect of a sale, leading some to reconsider their relationship with your business. This can result in lost customers/clients, which impacts revenue and stability – two factors that buyers care deeply about.
Competitive Vulnerabilities
Competitors may use news of your sale to their advantage, reaching out to your customers/clients or employees with offers or assurances of stability. This can damage your market position, especially if customers/clients or team members feel a competitor is more stable.
Reduced Business Value
Buyers view businesses that seem unstable or disrupted as riskier investments. This perception can lead to lower offers and less bargaining power, reducing the overall value you receive for your business.
Legal and Contractual Risks
Premature disclosure could breach confidentiality agreements with customers/clients or partners, leading to potential legal issues. These complications can stall the sale or harm future business relationships.
Disruption of Negotiations
An unintentional leak of information can complicate negotiations. If buyers feel the business is unstable, they may change terms, delay the process, or walk away. Keeping the sale confidential as long as you can minimizes the risk of these costly disruptions.
The Benefits of Maintaining Confidentiality
In case you need a reminder, the upsides to a confidential process for as long as possible are also many. For example:
Preserves Employee Stability and Morale
Confidentiality helps you avoid unnecessary worries among employees, preserving productivity and commitment. A stable workforce is attractive to buyers who want to see a smoothly operating business.
Retains Customer/Clients and Vendor Confidence
Customers/clients and vendors are less likely to panic or change their relationships if they remain unaware of a pending sale. This stability reassures buyers that important relationships will endure post-sale, making your business more appealing.
Protects Competitive Positioning
By keeping the sale confidential, you limit competitors’ opportunities to target your customers/clients or employees. This safeguards your business’s position in the market, which is vital for maintaining value and trust with customers/clients and employees.
Maximizes Business Value and Negotiation Leverage
Buyers are more likely to pay full value for a business that appears stable and well-managed. Confidentiality lets you negotiate from a position of strength, protecting your business’s true value and maintaining control over the sale process.
Supports Seamless Transition and Positive Buyer Perception
Buyers want to see a stable, well-managed operation. Maintaining confidentiality allows you to present the business in its best light, increasing buyer confidence and making for a smoother transition.
Reduces Legal and Contractual Risks
Protecting confidentiality minimizes the risk of violating agreements with clients, partners, or employees. This attention to detail avoids legal complications and protects relationships, ensuring a smoother sale process.
The Challenges of Maintaining Confidentiality
So what are the challenges in maintaining a confidential process during the first stages of a business sale?
Risk of Accidental Information Leaks
Even minor lapses in communication can unintentionally reveal details of the sale. A casual conversation or offhand comment might expose information, making it essential to stay vigilant.
Managing Employee Curiosity
Employees often sense changes and may start speculating. Balancing their need for information with the need for confidentiality can be challenging, especially with long-standing team members who may feel entitled to some transparency.
Handling External Inquiries
As vendors, customers/clients, or partners catch hints about the sale, they may ask questions. Deciding how much to share without jeopardizing confidentiality requires tact and consistency, especially with key relationships.
Balancing Transparency with Confidentiality
Certain stakeholders, such as key employees, may expect transparency. Navigating these expectations without compromising confidentiality can feel like a constant balancing act, especially as the sale progresses.
Navigating Changing Organizational Dynamics
As the sale advances, roles and responsibilities may shift, which can create uncertainty or misunderstandings among employees. Managing these dynamics while keeping the sale confidential requires patience and careful communication.
Conclusion
Confidentiality during a business sale is crucial for maintaining stability, preserving value, and minimizing disruption. It’s a balancing act involving risks, significant benefits, and inevitable challenges. By understanding the impact of confidentiality, you’re better prepared to approach the sale with insight and control, laying the foundation for a successful transaction. In Part 2 of this series on confidentiality during a business sale, we’ll unlock several action items you can pursue to find the right balance and timing.
Let’s Have a Conversation:
In what situations have you had to keep business confidentiality? What was the most difficult part of it for you? What suggestions do you have to others who need to keep business sale information confidential?
