Silence is Golden when Selling a Business

Silence is Golden when Selling a Business

Jun 21, 2010 Philip Keeffe

Business owners wanting to initiate the sales of their business usually turn to a professional for advice at some step of the way. This can be a business broker, an accountant, or a legal advisor.

It’s not always a good idea for the owner to market the business directly. “If the company that you're selling is small and self-contained, then selling your business privately is probably an acceptable option.

“However, if you're the owner of a large company that has a large impact on your industry, then it might be easier to maintain confidentiality by working through business broker.

“A good business broker may also maintain a portfolio of potential buyers as a matter of course. In fact, the two main advantages cited for using business brokers for selling your business is the maintenance of confidentiality and the broker's ability to qualify prospects.” (‘Selling Businesses Privately’, business-trader.com.au, accessed 21 June 2010)

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 getting the organization into presentable shape before the sale 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 California-based Business Exchange Network advises: “Getting a 3rd party professional business appraisal/valuation is important and critical for the process. 70% of all businesses never sell, usually due to too high of price (and/or a bad deal structure) placed on the business being sold.

“Getting a professional 3rd party valuation is well worth the expense and will be utilized by many parties during the selling process: possible business buyers, lender/financing companies for the buyer, and others.” (‘13 Crucial Steps For Selling A Business’, searchwarp.com, accessed 21 June 2010)

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. Because of this, news that the business is coming up for sale must not be allowed to leak out.
Prepare the Business before it Goes on the Market

Once an owner 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. Staff 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.

Sell A Business News says: “As a business owner you may be saying to yourself ‘I need to tell my key people, it’s the right thing to do. They helped me get where I am.’ But what will you tell them? Until you have identified the buyer and can be certain they are going to close the deal, what can you tell your employee with any certainty?

“The same goes for vendors and customers. Vendors may suddenly shorten your accounts payable terms if they get nervous. Customers often assume something is wrong with the company being sold – even though the sale is more likely to be for personal or strategic reasons.” (‘Whispering From the Rooftops’, sellabusinessnews.com, accessed 21 June 2010)

Nothing spreads quicker than the news that a business is for sale, and it can become a real problem for the vendor and for any agent handling the sale transaction. It can certainly impact on anyone trying to value the business at a fair price.

This is why all 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.
Owners Must Maintain Silence

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 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.

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.

Read more at Suite101: Silence is Golden when Selling a Business http://businessmanagement.suite101.com/article.cfm/silence-is-golden-when-selling-a-business#ixzz0raFlIOGM