In order to conclude a successful business sale, the owner has to be honest and transparent about all aspects of the company. Failure to do so could result in he or she being sued for misrepresentation, fraud or any number of other actions the buyer’s legal team may conjure up.
Ensuing legal action could result in the original sale price being adjusted downwards or the sale being declared null and void. So, given that all information has to be declared before the sale can be finalized, the question is really: how and when should you disclose information about the business?
The 'how' part of the question is relatively easy to deal with. Any information disclosed along the sales path should be covered by a Non-Disclosure and Confidentiality Agreement.
That way, the seller can be sure that any prospective purchaser will not pass on any sensitive information that relates to the business, while the buyer has sufficient access to the information required to make a decision about the purchase.
The 'when' part of the question is more difficult. A lot depends on the business, the area it operates in and the nature of the competition.
While all businesses face competition, some areas are particularly cut-throat and demand a lot more secrecy. For anyone who is thinking about selling a business and is worried about confidentiality, it’s best to take some expert advice from suitably specialized lawyers or accountants, or even a business broker.
A broker is a very good place to start for those who want to keep the whole notion of the sale secret until the deal is finalized, as the broker can confidentially and professionally market the business and only disclose exactly who is selling what when they have ascertained that the prospective buyers are serious players.
Information leaking out at the wrong time about a potential sale can cause a lot of damage to a business, particularly in the areas concerning staff, customers and suppliers, while banking relationships may also experience some fall-out.
Staff will naturally be concerned about their job security. Consequently, some of them may decide to seek employment elsewhere. Such a loss, particularly among dedicated employees, can lead to a slump in morale and a decline in productivity, which will not sit well with the buyer of the business, who will also be expecting to inherit the whole team.
Customers may feel edgy when they hear the business is for sale, as they will wonder whether they will be able to count on the same level of service, support and dedication that they have enjoyed in the past. This may cause them to move their custom elsewhere, undermining the value of the business.
New suppliers are unlikely to offer the best credit terms, while relationships with current suppliers may take a knock as they ponder the business’s financial situation.
Banks, too, may view the potential sale unfavorably, as it casts uncertainty upon the whole operation. Banks don’t like risks, and they may take action such as withdrawing or reducing the overdraft facility.
The only people likely to smile at the news of the sale are the business’s competitors. They’ll see it an opportunity to undermine the business with suppliers and customers in an attempt to win them away, thereby diminishing the value of the company.
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