Sure, you’re excited about possibly selling your business and moving on to a larger project or simply retiring. It’s easy to get excited about the large payout in the offing. But revealing too much too soon can put the deal, and your business itself, in jeopardy.
When the time comes to sell your business, just make sure you keep your excitement to yourself.
Keeping news about selling your business quiet is imperative. News that a business is for sale can elicit negative reactions among creditors, customers, suppliers and employees. It also can spur aggressive reactions from competitors that could deteriorate your momentum and decrease your company’s value.
Below are four reasons of what’s likely to happen if news of selling your business leaks out:
(1) Employees get nervous
When buying a business, a significant part of the value is in the experienced and trained employees. A buyer does not want the employees to quit, and because employees typically need, like, and want their jobs, they do not want to quit. However, when an employee hears that an owner is selling the business, one troubling thought occurs: “What will happen to me?” This can cause unnecessary panic and can move the employee’s focus away from his or her daily responsibilities. Employees wonder if they’ll still have jobs. Before you have a chance to reassure them, or be introduced to a new owner, they may look for new jobs and leave even before a sale is consummated.
Losing key employees is serious, especially during the sale process. Key staff members provide valuable continuity and business familiarity that buyers are looking for. Lose valuable employees and potential buyers may be lost too.
(2) Customers begin to wonder
Even though you are selling your business for all good reasons, your customers and clients may become concerned whether the business has problems that could threaten their supply chain or services they receive from you. They may feel uncomfortable doing business with you because your company is about to be sold to someone else whom they don’t even know, before they even get the opportunity to meet the new owner. They may start questioning whether the quality they have become accustomed to will remain the same.
(3) Competitors will spread the word
Once the competition finds out, you can be certain they’ll let your customers know about it and use it as ammunition to bring that business to their company. It opens the door for your competitors to steal business from you.
(4) Vendors and creditors may tighten terms
If suppliers hear a business is being sold they may choose to modify their credit policies until the new owner makes the transition. For example, if a business has a vendor that normally sells a product to the business and allows 45-day terms to pay the bill and, because of a rumored sale, changes its policy to 10-day terms, that could have a significant and harmful impact on the day-to-day operation of the business. You may be working with advantageous terms of net 45 or more to benefit your own cash flow. However, once creditors learn that the business is for sale, you may find those terms tightening or notes called in without warning.
It usually is a matter of months before the sale of a business is completed. If any of the above changes takes place, there can be a dramatic impact on the sale negotiations. A buyer wants to take over a smoothly running enterprise; he or she will make their own changes on their own time schedule.
No matter the size of the business, confidentiality is crucial. A seller should work with a professional who understands the business and the sales process. An intermediary will market the business and provide the right amount of information to spur interest.
The intermediary’s role includes keeping the seller’s identity secret until a serious buyer is found, and also screening inquiries to be certain they’re not from competitors looking for information.
Once a qualified buyer has been identified, there should be a binding confidentiality agreement that holds the prospective buyer accountable if information leaks out.
Keeping the sale confidential will minimize problems, increase the value of the sale and reduce the risk of killing the deal.
Need a professional to help plan a successful exit strategy?
While the above four steps can be taken now to plan for a successful exit strategy, a professional business broker can help. They can identify and help you tackle other steps based on the specific circumstances of your business.
You can also download our Selling a Business Checklist, which offers insight into how to get your business ready to sell:
If you need help putting together a strategic plan, please contact the Benjamin Ross Group at 215-357-9694 to speak with a business broker who can help you start the process.