The “C” word in the sale of businesses – Confidentiality

December 15, 2009

Just how many times in a business sale transaction does one want to utter “Because I’d have to kill you.”  Lots.  Confidentiality is very, very important.

Yesterday I was off to pick up a package from a client.   The very most efficient way of getting the material was to pick it up at his place of business.  We talked about the plain white envelop with just my first name on it.  (Note my first name is Priscilla which in any other state in the union would almost immediately guide the suspicious person to  my door step.  But, not here.  Not in New Mexico.   The business buyer/seller need not fear that my unusual name in the other 49 is a give away.  There may be thousands of Priscilla’s here. )  All of this got me thinking about the need for confidentiality in buying and selling of businesses and why it is different than, for instance, real property sales.

From the seller’s point of view they want to know that the business broker will not inappropriately divulge any information they share.  The information can range from their financials, exclusive deals with vendors or purchasers, lease agreements, formulas, partners, complications, etc.  They want to know that the person the broker might appropriately share it with is qualified to buy, has intent, and has promised not to further share.  The seller wants to know that unless they approve it a competitor will never have the information.  They don’t want clients, staff and others to know they are even THINKING of selling and much more actually on the market.  People could change patterns of behavior and leave the seller in a worse position.  the proprietor is protecting his interests.

From the buyer’s perspective, when they are exploring change they too can require confidentiality.  Perhaps they are going to expand a current business, leave a job, dissolve a partnership, or close another business.  Often their intent is very confidential.   As they are exploring the purchase of a business, once they become earnest and if they are going to ask the seller to finance, a copy of their financial statement and credit report are requested.  These are not items they want to share with the world.

Unlike in most sales of homes or commercial buildings buyers and sellers of businesses do not want a sign on the door, a specific listing on the Internet, or  a flier in every box.

Confidentiality is important.  It is important enough that Wiipedia.org has an entry on it  http://en.wikipedia.org/wiki/Business_broker

Sorry, I can’t tell you because then I’d have to kill you.

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