Importance Of Signing An NDA When Selling
You can take all sorts of different approaches when selling a business. It seems like everyone has a different opinion on what the asking price should be or who the likely buyer will be.
But here’s one thing that every business owner can agree on: you shouldn’t discuss the sale of your company without having the buyer first sign an NDA.
A Non-Disclosure Agreement is what prospective buyers must sign before any sensitive information is exchanged. It’s a legally binding contract that protects confidentiality. Any data outlined in the NDA must remain solely between the parties involved.
NDAs are often used as a framework to prevent crucial information from leaking, such as:
Proprietary formulas
Manufacturing or operational processes
Client or sales contact lists
Non-public accounting figures
Employee info
We’re going to explore why NDAs are necessary when you’re selling a business:
Do You Need an NDA?
If a buyer is interested in your company, they will eventually want to know all the details about your finances, customer base, and employees. But imagine what might happen if that potential buyer were to change their mind.
Now that they’ve gained knowledge about some of the most confidential information regarding your business, you don’t want your competitors to learn about your financial statements, the materials you purchase, your processes, daily operations, or your biggest accounts. Without an NDA, this information could be leaked.
In many cases, a seller tries to keep the sale of their business confidential until the deal is finalized. It may threaten their reputation if competitors or customers were to learn about the sale. If this information gets out before the deal closes, it may affect the success of the sale; it could even lower the value of the business.
Think about it from a customer’s perspective: would you be less likely to purchase products or services from a business that you knew was for sale? It could lead you to believe that something is wrong with it, even if that’s far from the truth.
What Information is Confidential with an NDA?
It’s important to know what information a Non-Disclosure Agreement protects, and what it doesn’t. When an interested party signs the contract, be sure to review it with your business broker to determine what will be confidential, and what can still be made public.
Any information that potential buyers learn before the NDA is signed, or details that are already public knowledge, cannot be protected by the NDA. That’s why it’s imperative to have one signed before sharing any information about the sale of your business.
By signing the NDA, the potential buyer agrees that they will not contact anyone about purchasing the business (such as employees, customers, or suppliers) unless it’s through the business broker. Any information that the individual does share about the business (with an advisor, lawyer, or banker) must be strictly related to the transaction, and not reveal confidential details.
The final clause of the NDA states that if the individual chooses not to purchase the business, they must delete or destroy all information they have about it. This includes financial statements and other confidential documentation.
NDAs typically expire after a designated period, such as 5 years.
Working with a Vancouver business broker ensures that your confidential information remains confidential. They can prepare an NDA and have potential buyers sign it before any sensitive information is exchanged. Contact Jason Brice today to discuss how you can keep the sale of your business private.