Selling a business is a strange mix of advertising – communicating – that the business is for sale and keeping the whole process confidential.
Confidentiality is very important. If word gets out that the business is for sale, people will start to question if they can rely on it. The whole uncertainty surrounding a sale may hurt business performance, thereby resulting in a reduction in the sales price.
The conclusion: To get the maximum amount for your business in a sale – keep everything confidential.
Here are some of the problems that can arise if word gets out that your company is for sale.
Customers can become concerned if the company will continue to be a stable and reliable vendor or product/service provider. There will be worries about quality slipping, both during the process and after the sale is complete. There will be worries that the business will be shut down completely.
Creditors and vendors may become more difficult to work with. They may tighten credit terms, insist on faster payments, and so on. This can hurt your profitability and increase working capital requirements.
Employees can become concerned if they will be laid off. Many businesses are sold to competitors with redundant capabilities. Cost reductions through layoffs are common in these circumstances. It is very possible your employees will start looking for other jobs during the process. That is the last thing you want to happen during the sales process. A buyer will wonder why employees are leaving at the critical time, reducing the sales price.
And your competitors will not be your friend in this. If a competitor discovers your company is for sale, you can be certain they will use the information against you with customers. Sowing debt and fear to convince the customers to switch to them.
A business can take up to a year to be sold. Sometimes longer. If the above negative effects happen early on in the process, that will mean your business will suffer for a year. Or more.
A buyer wants to step into a stable and well-run business. Having numerous issues caused by the above can prevent this scenario.
Confidentiality is critical in the sales process, no matter what type of business. Using an intermediary is very helpful in maintaining confidentiality. Screen potential buyers and have the best candidates sign a confidentiality agreement. Please see my other post on this topic for more information about how to keep things private.
The conclusion: To get the maximum amount for your business in a sale – keep everything confidential.
