Keep Business Sales Confidential from Employees
When selling their business, many business owners wish to maintain the confidentiality of the sale from their employees. Business owners are justifiably fearful that their employees may panic or even quit if they find out that the business is for sale due to premature leaks. Implementing a ‘need to know’ policy restricts knowledge of a business sale from anyone but the owner and trusted advisors. A professional business broker maintains the confidentiality of the sale from employees throughout the entire listing process. This includes the initial placement of a ‘blind ad’ which prevents employees from discovering the business is for sale, arranging all meetings in a confidential manner, and requiring all buyers to sign a Non-Disclosure Agreement (NDA) which prevents contact (unless granted by the seller) between the potential buyer and employees.
‘Blind Ads’ Maintain Confidentiality from Employees
A ‘blind ad’ is a method of advertising used in business sales which maintains the confidentiality of the business being sold. Viewers of a ‘blind ad’ will not be able to determine the actual identity of the business being sold. The name, city, and address of the business is not given, pictures of the business are not publicly posted, and information is limited so that viewers (including employees of the business) will not be able to discover the true identity of the business. Tailoring a ‘blind ad’ to protect the confidentiality of the business requires an experienced and professional business broker. If a viewer of a ‘blind ad’ desires to know the true identity of the business, they must qualify themselves financially and by completing and signing the NDA.
NDA Maintains Confidentiality of Sale from Employees
The NDA that a buyer must complete and sign serves to protect the confidentiality and integrity of a business sale during the entire listing process. In no uncertain terms, the NDA should prevent unauthorized contact between the buyer and the employees, suppliers, competitors, and customers of the business. If a prospective buyer breaches this agreement, then legal penalties will apply. A business broker must also remind potential buyers of these prohibitions. Some unscrupulous buyers may attempt to simply walk in unannounced to a seller’s place of business in order to discuss the sale directly with the owner. This, of course, will disturb the business and is likely to cause problems or disruption with the employees. It is crucial for the NDA to be signed and enforced in order to maintain the confidentiality of the sale from employees.
Meetings Should be Kept Confidential From Employees
When a business broker lists a business for sale, the broker and the seller typically meet at the place of business. This enables the broker to better value the business. This initial meeting, however, must be conducted away from the prying eyes of employees. Even if the broker and business owner meet in a private office, the broker must never disclose their purpose for being there to any employees. A broker may say that they are with an insurance company if asked by employees. Additionally, meetings between the buyer and seller (and broker) should similarly be conducted in a manner that prevents any employees from learning about the pending sale of the business. It is usually best to have such meetings before or after business hours, when no employees are present in the business.
Confidentiality of Sale From Employees During Formal Due Diligence
- Often the most contentious aspect of keeping a business sale confidential from employees occurs during the formal due diligence process.
- The formal due diligence process occurs after a written instrument (such as a Letter of Intent or purchase agreement) memorializes a meeting of the minds between the buyer and seller with respect to the terms of the sale.
- The buyer is also usually required to place a refundable deposit into escrow upon the execution of the purchase agreement..
- This gives the buyer exclusivity to close for a specific time period, when they then may make a thorough and comprehensive investigation of the business.
- During this formal due diligence period, the buyer is allowed access to more sensitive financial and company documents (such as bank statements, payroll records, or insurance certificates) that will allow a buyer to make a final decision as to whether to proceed with the closing.
- In some instances where key employees are instrumental to the value of a business, buyers going through a formal due diligence process will request that they be allowed to meet with certain employees.
- Such a request should be made prior to the deal getting to the formal due diligence stage.
- This way, if the seller refuses such a request, then both parties will have the time to negotiate (if possible) a resolution of the matter.
- Often such negotiations will result in the buyer only being allowed access to key employees at the very end of formal due diligence, as a final contingency prior to closing.
- The buyer’s deposit may also go ‘hard’ (or non-refundable) prior to this last contingency.
- It is often helpful for a buyer to state (in writing) the specific reasons for wanting to speak with key employees, and what exactly they intend to tell or ask the employees during such a meeting.
- If their intentions are reasonable enough, then some sellers under certain circumstances may allow access to their employees to a buyer as a final contingency of formal due diligence.
The confidentiality of business sales is a critical aspect of the selling process for many business owners. Most sellers fear the disruption to their business if their employees know that the business is for sale, and for that reason only tell their employees about the sale until after it has already occurred. It is the role of the business broker to protect the confidentiality of the sale from employees during the entire listing process.
Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.