Minimizing Risk & Maximizing Confidentiality In The Business Sale Process
I don’t need to tell you that all business is risky business. You can’t be a business owner without taking risks—and you can’t sell your business without any risks, either.
As a business broker, one of my goals is to help you mitigate risk when selling your business. In this article, I’m going to do just that. We’re going to cover some of the most common risks you’ll encounter when selling your business—and how minimizing them can increase the sale price.
I’m also going to hone in on one risk in particular: Information getting leaked.
The types of risks (and how to minimize them)
Let’s start with what’s easiest: Minimizing the risks that are the simplest to control. These include:
Hubris. To be blunt, it’s easy to overvalue your business. Unfortunately, that can price you out of the market and make prospective buyers trust you less. Trust your business broker during negotiations (and in setting the price).
Lack of information. To get the most for your business, you need to know the market. Again, your business broker is an essential asset.
A damaged reputation. While this risk is more complex, I’ll teach you how to keep your reputation intact by maintaining confidentiality.
The next risks we’ll want to avoid are what I’ll call concentration risks. To mitigate these, you may need to make (sometimes substantial) changes to your business. They’re not risks to you; rather, they’re risks the potential buyer would like to avoid. These risks are:
Customer concentration: When too much of your business relies on one or two buyers, the new business owner may not want to take on the risk of losing them—especially if those buyers have a personal relationship with you. Diversify your customer base.
Employee concentration: When your business relies on one or two key employees, the new owner risks a significant loss if those employees leave. Offer your key employees incentives to stay on once you’re gone (like bonuses and parachute clauses), and have them sign non-compete and non-disclosure agreements. You can also reduce your reliance on key employees by distributing work more evenly among staff.
Product concentration: If only one or two of your products make up the bulk of your sales, a prospective buyer may worry about business failure should the market turn. Diversify your offerings.
These are just a few of the risks that can influence the purchase price of your business—potential buyers will generally prefer you limit these risks as much as possible. They’ll find out about risks during due diligence, so keep everything above board!
One of the biggest risks is information leaking to buyers and employees during the sales process. This can undermine confidence in your business and lead to conflicts with key stakeholders.
Confidentiality breaches can send a would-be buyer running for the hills.
I’ve written a whole blog on balancing confidentiality and employee notifications, but in brief: Don’t tell employees about the sale until you absolutely have to.
You should also keep the sale top secret in other ways. Use a codename for the sales process. Avoid using your work emails if you can—use a secure email address that’s not associated with the business.
Finally, opt to sell with a business broker instead of a commercial real estate agent. It’ll keep the process confidential, vetting prospective buyers and getting them to sign NDAs before any crucial information is revealed.
I can help you sell your business, all while minimizing risks and maximizing confidentiality. Click here to meet with me.