Selling A Business
Why Confidentiality Matters When Selling a Business in Palm Beach
When you are selling your business, you can’t afford to let people find out too soon. If your customers or employees discover that you are looking for a buyer, it may have an adverse impact on your sale price.
Remember that the value of your company depends to a great extent on its ability to continue generating revenues and profits after it changes hands. But if you face an exodus of employees when the sale process is on, it’s unlikely that your business will be able to retain its tempo.
It’s quite natural for your workers to be worried if they find out that you are looking for a buyer for the company. Will they be able to get along with the new owner? Could a new “rationalization” plan make them redundant?
You may think that the best way to handle the issue is to be honest and inform your employees about your plans. But that may not be the correct approach.
If the sale process is at an early stage, you may not have much to tell your employees. This lack of information could lead to rumors and gossip within the organization. The uncertainty may prompt some team members to start looking for other options. In situations like these, it is usually the high-performers who leave first.
The prospect of a sale could unnerve customers and vendors too
If word gets around that you are selling your business, there are people other than your employees who are going to sit up and take notice. Your customers could be worried that without you there, the quality of the products that they buy or the level of service that they get, may decline. Some of them may approach you to find out if you are selling, but others could take the easier way out and shift their business to the competition.
Your vendors may start tightening credit terms. This could lead to a requirement for more working capital. You may have to inject funds into the business or look for external sources of finance. Your company’s profitability could be affected.
It could take nine months to a year, or even more, to sell your business. During this period, you would want your company to continue to flourish. But the opposite may happen. Your customer base may start shrinking, and you could be faced with declining profits. This could lead to a lower selling price and may even jeopardize the entire sale.
Here’s what you can do
To maintain secrecy, consider using a blind listing. Provide the bare minimum of information to buyers. Details about the type of business, the geographical area that you operate in, employee numbers, and some other particulars should be enough to attract genuine buyers. When you have a short-list, consider asking them to enter into a non-disclosure agreement.
As far as your clients are concerned, it may be advisable to speak to a few key customers and inform them of your plans. Of course, you should do this only when your sale has started to take shape.
Another precaution that you should take is to withhold your customer list from the prospective buyer for as long as you can. You don’t want a business rival stealing this critical data.
You also need to decide when you will tell your employees. It could be a good idea to inform key members of your team first. Consider giving them a retention bonus to incentivize them to remain with the company. Another way to ensure that they don’t leave is to stay on yourself. See if this fits in with your plans and those of the buyer.
The bottom line
Business owners sell their companies for a variety of reasons. They may want to retire, or ill-health may force them to look for a buyer. One of the partners may want to pursue other interests. However, when word of a proposed sale gets around, many people view it negatively. They think that there must be a problem with the business itself. This could have a direct impact on your sale price.
The best approach is to keep your plans secret for as long as possible. Divulge information only on a “need-to-know” basis. This will lead to an easier sale and could also help to maximize your selling price.
Sunbelt Business Brokers of West Palm Beach can help you prepare to sell your business in South Florida, guiding you from listing to closing. If you’re considering selling your business, get in touch with us today for a confidential, no obligation conversation.
Ryan Cave is President of Sunbelt Business Brokers of South Florida, a business brokerage firm specializing in the purchase and sale of small to midsize businesses. Sunbelt Business Brokers of South Florida has been involved in the valuation and sale of hundreds of privately held businesses for nearly 20 years.
