Selling Your Business? Protect Your Confidentiality

Once you start marketing your business, your business sale will be about all you can think about. Here's some important advice: As much as possible, keep your thoughts to yourself.

Confidentiality is absolutely essential in successful small business sales.

It's important for reaching your own exit goals. And it's important for the success of your business post-sale, especially if you provide seller financing and agree to receive some of the purchase price in the form of future payments from the buyer.

Letting the word leak out prematurely is harmful in a number of ways:

Customers, competitors, creditors and employees become hesitant when a business is for sale, often triggering reactions that can weaken your business momentum and therefore its value.
Prospective buyers become hesitant about purchasing a business if they feel sensitive information has been divulged to others.
Telling even close confidants can launch an unintentional gossip chain. If each person tells only one other trusted friend or relative, news of your sale intentions can spread far and quickly, especially if word gets out among competitors, employees, or others in your industry.

To protect your business and your sale hopes, take the following actions.

Step 1. Advertise your business using blind ads and listings.

Don't share your personal or business name until you've qualified prospective buyers and obtained their confidentiality commitments. And certainly don't announce your name in for-sale ads.
Advertise the nature and strength of your business instead of its name. For example: PROFITABLE PALM SPRINGS FLORIST WITH LONG-TERM ESTABLISHED CUSTOMER BASE FOR SALE.
Direct responses to an address that doesn't reveal your personal or business identity. When placing ads in traditional media, use media-provided P.O. Box or e-mail options that allow you to maintain confidentiality and - a big time-saving bonus - to follow up only with prospects you decide are qualified to buy your business. When using online business-for-sale sites, use the sites' identity-protecting features.

Step 2. Pre-qualify buyers before sharing sensitive information.

If you feel awkward about asking a prospective buyer for financial and business background information before divulging your business name, you're not alone. But realize this:

Qualified buyers expect you to screen buyers before sharing sensitive information.
Qualified buyers care about the privacy of your business information because they want to know that the business they're buying has carefully protected its trade secrets and financial information.
Qualified buyers are serious shoppers and they're ready with the information necessary to take the next steps.

According to business brokers, nine out of ten respondents to business-for-sale ads aren't qualified to make the purchase. That's why pre-qualification is so important. The sooner you learn who can and can't buy your business, the better - both for you and for your ultimate buyer.

An effective way to pre-qualify prospects is to describe your business and response requirements in a way that helps unqualified buyers opt themselves out.

By describing the size of your business and your purchase price, and then by asking interested parties to respond by describing their purchase capabilities, you stand a good chance of hearing only from those who, in fact, are qualified to buy your business.

In every ad you place, in print or online, ask interested parties to respond with information that describes:

What they're seeking from a business purchase
Their purchase timeline
A description of their related business experience
Their interest in and ability to buy your business

You can cover this request in one sentence: Please respond describing your related business background, the type and size business you seek, your investment capability and your interest in this business.

Step 3. Create an inquiry response system that shares information confidentially and in phases.

You don't need to tell a buyer everything at once. In fact, revealing too much information in your ads can give away your identity even when you're careful not to share your business name.
The following chart provides an example of when and how to phase your information delivery.

Delivery Stage	Included Information	Confidentiality Request
Business-for-sale ads	Brief description of business type, strength, size and price.	Online listing can be set up to request confidentiality. Example: Before releasing further details, the party offering this business for sale requires a signed confidentiality agreement. Brokers require interested parties to provide financial capability and non-disclosure agreements before receiving additional information.
	Request for interested parties to respond by describing purchase intentions and qualifications.
	Request for responses to a blind P.O. Box, email address, or media collection point that doesn't reveal your business or personal name.
Phone or email replies to qualified ad respondents	Personal introduction and additional information that doesn't reveal sensitive information or business name.	Share additional business information only in return for buyer information and only in general terms.
	Probe/confirm interest, financial capability, purchase interests, timeline.
	Offer to email or fax your brief selling memo summary but with any references to your business identity removed.
	If interest and capability is high, request a personal meeting before sharing more information.
Initial personal meeting, held in person unless distance requires a phone meeting.	Reconfirm prospect interest and capability. After guaranteeing confidentiality, share your selling memo to be read during the meeting.	Meet off-site to protect identity of your business - likely in your broker's, accountant's or attorney's office. Reconfirm serious interest and request signatures on a mutual confidentiality agreement prepared or reviewed in advance by your attorney.
Delivery of selling memo	See “Preparing an effective selling memo” for a complete list of contents.	Share selling memo only after receiving a signed confidentiality agreement and only to be read during the meeting unless you're extremely confident about the buyer's interest/capability. Otherwise, release only the memo summary.
Due Diligence	Reveal financial records and business operations. Release a copy of your selling memo, with each page numbered (#1, for example) so they can be traced to the buyer's copy should they later be copied or circulated.	Reveal only after receiving the buyer's formal letter of intent to purchase your business.

Step 4. Prepare for maintaining confidentiality.

To maintain privacy throughout the selling process, take these steps:

Have a confidentiality agreement ready for presentation to serious, qualified buyers. Use our sample provided below, a sample that your broker (if you use one) provides, purchase one from a form shop or site, or work with your attorney, who should review the form you plan to use even if he or she doesn't produce it for you. Be sure to include a clause that ensures mutual confidentiality and an expiration date that allows the confidentiality assurance to expire, usually after two years.
Establish a private email account for use exclusively with prospective buyers. Otherwise, you risk tipping off employees and causing concern within your business. Instead, invite buyers to send a confidential email to a non-business address, which you set up exclusively for the purpose of business sale communications. Don't use your personal name, as it's too easily traceable, but rather create an address that disguises who you are. For example, landscapingoffer@gmail.com or even a lineup of random letters and numbers.
Direct calls to a non-business phone number, and be sure to answer the phone or offer a voicemail message that conveys appropriate greetings to business buyers. Keep in mind that your home phone may not be appropriate here, as employees, vendors or competitors who know you personally might recognize your phone number or your identity on your answering machine.
Even with a signed confidentiality agreement, until you have a letter of intent or a buyer's offer in hand, don't share proprietary processes, trade secrets, client lists, or financial details about your business. Your sale offering likely listed annual revenues and owner's cash flow, along with asking price. Don't share further financial details until the prospective buyer has demonstrated clear ability to purchase and pledged to maintain confidentiality.
Be prepared for questions from employees and associates, who may suspect your sale intentions. You can be truthful without spilling the beans. You can say you're developing an exit plan to ensure future stability for your business; you can say you're talking to potential partners or successors without out-and-out announcing they'll be replacing you near-term. If people ask, "Are you thinking about selling," you can follow the suggestion of Appraiser Glen Cooper and answer, "Sure, I'll always talk to someone who wants to buy me out! Did you bring your checkbook?"

In next week’s installment of “Selling Your Small Business” we’ll go help you decide which marketing option is right for you.