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Selling a Business? Keep it Quiet!
Business owners wanting to
initiate the sales of their business usually turn to a professional for
advice at some step of the way. Exit planning in itself is a complex
process and should have begun well before the business goes on the
market, although experience shows this isn’t always the case.
The vendor’s aim is naturally to obtain the maximum price for the
business when it is sold, and often this can only be achieved by a
careful restructuring of the organization before the sale actually
commences.
The valuation itself is affected by a large and diverse range of
factors. Prevailing conditions in the marketplace must be identified,
understood and related to the enterprise being sold. The person doing
the valuing can’t rely exclusively on the vendor for a complete picture
of the market as a whole and must instead find their own sources of
information.
Then there are all the legal requirements – the contract of sale, the
valuations of individual pieces of capital equipment, valuation of stock
on hand, liabilities to pay out workers displaced by the sale, and so
on. It’s not something that can be handled quickly, nor is it a simple
task to complete correctly.
Once a client decides to sell a business it’s not always a good idea to
tell the world immediately. There are many issues that require careful
consideration so that the value of the business remains unaffected while
the sale process is carried out.
A business that is known to be for sale raises suspicions among several
important groups of people. Team members wonder about the security of
their jobs and may well start looking around for new positions.
Suppliers become concerned about getting paid for their latest invoices
and can tighten credit terms, and competitors reach for their phones to
contact every customer of the business they know about to offer them an
‘unbeatable deal’ if they’ll change their source of supply.
Nothing spreads quicker than the news that a business is for sale, and
it can become a real problem for the vendor and for the agent handling
the sale transaction. It can certainly impact on a professional services
provider trying to value the business at a fair price.
All professional advisors discussing the forthcoming sale with the
vendor should take extreme care to keep the fact of the business being
sold a secret. Information disclosed by the owner must be treated as
highly confidential and not released unless the owner’s permission has
been received and the advisor feels it can be made public without
compromising any aspect of the sale process.
Experience has shown that the professional advisors are rarely the
source of leaks about a business that’s coming onto the market. It’s too
important for their own professional standing to put at risk their
ability to keep things under wraps until the appropriate time. The
problem usually originates with or close to the vendor.
Begin by stressing to the vendor that the name of the business should
not be mentioned in the context of selling it. Instead, prepare an
accurate summary of the key points about the business so that it conveys
the most of the information a prospective purchaser would like to know
without giving away enough to make a positive identification. This
information can be used by business agents or brokers that become
involved in the marketing process.
Next, make sure that any prospective buyer is asked to sign a
confidentiality agreement before any further details of the business are
revealed. The list of prospective buyers should be carefully checked so
that direct competitors can be identified and won’t benefit from some
critical market knowledge.
The underlying aim of all this
secrecy is to retain the value of the business as a going concern, and
that includes both people and its position in the market. If word gets
out too early that the business is for sale, its value can be materially
affected and significantly reduced from the price it would otherwise
have achieved.
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