Selling a Business – The Cost of Confidentiality
For every business owner that lists their business for sale with a business broker, there are many more owners who would like to sell, but are afraid to put their business on the market. The primary reason is a fear that the business sale will not remain confidential. A breach of confidentiality could damage their business by causing it to lose employees or customers or damage supplier or bank relationships. So, instead of putting their business on the market, the business owner quietly sells to another company they know in the industry. In many of these business sales, the business owner mistakenly assumes that they probably netted as much as putting their business on the market because they would have had to pay a business broker’s commission.
There are two wrong assumptions that business owners make in this line of action. They overestimate the chance of confidentiality being breached. And, they underestimate the loss in sale price that results from not putting the business on the market.
The chance of a breach of confidentiality, by a competent business broker using prudent methods to preserve confidentiality, is low. We have the business owner review any advertisement, before it is used, to be sure it does not contain information that would reveal the identity of the business. All buyers are screened for their financial capacity and must sign confidentiality agreements before they learn the identity of the business. When screening buyers, the business owner may review and approve all of them if they wish. If the owner is not approving all buyers, we will ask the owner to approve buyers that may be in the industry or known to the seller.
The loss in sale price that a business owner receives when the business is not put on the market can be huge. In one recent sale that we did, the business buyer paid 5 times what an industry buyer offered. The industry buyer had done other business purchases and said that their offer was what they typically paid. The eventual selling price was in-line with other offers and the appraised value of the business.
If you are thinking of selling your business, put it on the market to get the best price and terms. If you want a confidential business sale, ask how the business broker will keep the sale confidential and look at their track record for doing so.