Why Confidentiality is Crucial When Selling Your Business

We hear the words confidential, secret, private, and non-public all the time in business settings. So much so, that often these important words just sort of blend into the background and their real meaning and intent is lost. Therefore, to appreciate why confidentiality is crucial when selling your business, we first need to start by looking at this magic word – CONFIDENTIAL.

Dictionaries define confidential as “intended for or restricted to the use of a particular person, group, or class”, or as “containing information whose unauthorized disclosure could be prejudicial”.  The concept of confidentiality goes back a very long time in history. Leaked state secrets, or confidential information, could make or break kingdoms and start wars. Leaked trade secrets could derail industrial giants. Leaked private information could be used to undermine rivals. And even ancient physicians who took the Hippocratic Oath promised to respect confidentiality – the long-ago origins of present-day doctor-patient confidentiality. Today, the widespread nature of information sharing, or misinformation sharing as the case may be, weak security practices that allow for leaks, and simple lack of attention to the basic premise of confidentiality have dramatically weakened the basic “promise” of confidentiality.

So today, while the broader business world might be less than diligent in staying true to the word “confidential”, this age-old concept turns out to be especially crucial when selling your business. There are several reasons why.  Let’s look at some of the most important ones.

You need to protect your competitive advantage: Revealing sensitive information about your business could provide competitors with valuable insights into your operations, strategies, and financials. Often, it is a competitor that might be the best suitor for your business. Maintaining confidentiality helps safeguard your competitive advantage and prevents competitors from exploiting weaknesses or copying your business model under the guise of “hey, I might be interested in buying your business”.

Preserving Employee Morale: Employees may feel uncertain or anxious about their future if they learn about a potential sale. Confidentiality provisions with suitors allow you to control the timing and/or manner in which you communicate the news to your employees, minimizing disruptions and maintaining morale during the transition period.

Maintaining Customer and Supplier Relationships: Public knowledge of a potential sale could create uncertainty among customers and suppliers, leading them to seek alternative options. By keeping the sales process confidential, you can continue to nurture these relationships and prevent any negative impact on your business’s revenue and operations.

Maximizing Negotiating Power: Maintaining confidentiality prevents potential buyers from gauging the urgency of your need to sell, which can give you more negotiating power during the sale process. It allows you to control the flow of information and negotiate from a position of strength.

Protecting Reputation: A breach of confidentiality can harm your business’s reputation and credibility in the market. It may create the perception of instability or financial difficulties, which can negatively impact your relationships with stakeholders, including investors, partners, and customers.

Compliance with Legal and Regulatory Requirements: Confidentiality may be legally required in certain situations, especially if the sale involves proprietary information, trade secrets, or confidential agreements with third parties. Failing to maintain confidentiality could result in legal liabilities and disputes.

As you can see, confidentiality is crucial to a successful sales process. The same also applies to fund raising, divesting part of a business, and even major organizational changes. Confidentiality keeps you in control, keeps your valuable information and years of hard work protected, and allows for an orderly process to get you the results that you expect and deserve.

Having worked on transactions that range in value from a few million to a hundred million, we have seen it all and can help you maximize the value of your business. Reach out and let’s have a confidential discussion about evaluating the value of your business.

Our team is standing by to help you on a confidential basis!