Mum's the word when
selling a business

"Can you sell my business without telling anyone it's for sale?" is the question we're asked most frequently when meeting with potential clients.

Owners of medium- to large-sized private businesses are justifiably concerned about their ability to maintain a high level of confidentiality when considering selling their businesses.

The main reason is the highly competitive nature of business.

You could have an exclusive arrangement with a supplier who, if he became aware that you were contemplating selling, might be encouraged to transfer the supplier agreement to a competitor.

Customers, who are concerned about ongoing source of supply and continuity of both quality and delivery, might be inclined to search for another supplier if it became known that your business was for sale.

Key employees often become very concerned about security and opportunities for advancement if the company for which they're working is known to be for sale.

And, of course, competitors would just love to know that your business is for sale because then they would be able to go after your customers, your exclusive suppliers, and your best employees.

In 1986, I was involved in the sale of a business in which confidentiality was breached by an employee.

A competitor went to the client's largest customer, told the customer that the client was for sale and was having financial difficulty. The customer cancelled an order that was worth approximately 50 per cent of the client's annual revenue.

We all know what that did to the value of the business.

Fortunately, in this case, a meeting with the customer was quickly arranged. The solvency of the business was proven and the customer was convinced that, if the business were ever sold (which it subsequently was), the new owner would obviously continue to provide the same quality of product, the same timely deliveries and the same great service.

The most common sources of confidentiality breaches are:

1. The immediate family of the seller
2. Bankers
3. Trusted Friends
4. Employees and confidants
5. Professional advisers, such as law firm, accountants, etc.

Maintaining confidentiality is not a simple task. It is an involved, interlocking process that has to be methodically practised.

The methodology that we believe most successful in maintaining confidentiality is using a business intermediary, a lawyer, an accountant, or some other third party to act as a filter between the owner of the business and the prospective purchasers.

Great care needs to go into marketing materials to ensure they do not provide clues to a purchaser as to which business is for sale.

It's also important to de-identify all selling material and documents until the buyer is adequately qualified.

Ensuring that all prospective purchasers are qualified to actually receive information about the business is a key part of maintaining confidentiality and should be carried out by your intermediary.

A critical first step is to have any prospective buyer sign a confidentiality agreement.

The potential buyer should provide a credible third-party reference (accountant or banker) to attest to his financial capability to purchase the business.

Another important aspect of qualifying a prospective purchaser is to establish his or her integrity and reliability.

What does the business owner and his or her intermediary know about the prospective buyer?

Does the prospective buyer inspire confidence or doubt?

This is an area where a great deal of experience in selling businesses comes in very handy.

For example, we recently sold a mid-sized company in Niagara and one of the prospective purchasers was an American who had made a substantial offer to purchase, but also required that the seller hold a large percentage of the purchase price in seller financing.

Experience told us there was more to this would-be business owner than met the eye.

As part of qualifying him as a prospective buyer, we took the unusual step of retaining a private investigator. The report with which he supplied us indicated that this potential buyer was a convicted fraud artist who had made a number of transactions in the U.S., with large seller financing, had liquidated the businesses and left the sellers unpaid.

Needless to say, he didn't qualify!

If you're contemplating selling your business in the not too distant future, then it's important that you think about what degree of confidentiality will be required.

For instance, if you own a variety store, confidentiality won't be a major concern... Your customers are more interested in your convenient location than in who's running the ship. That's why you often see businesses such as these advertised openly in the real estate section of newspapers.

On the other hand, owners of larger companies should plan far in advance for the eventual sale of their businesses and keep that planning confidential from the earliest stages.

Selling your business is a complex process but remember the popular saying from the Second World War -- "loose lips sink ships."

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