Confidentiality When Selling Your Business: The Ultimate Guide

Confidentiality is critical every step of the way when selling your business - from your first communications with your business broker or M&A Advisor, to marketing, navigating due diligence, and closing.

As an owner, one of your worst fears is that your employees, vendors, or competition will find out you're selling your business.  

So how do you find a great buyer and protect your confidentiality along the way? By planning and careful consideration through every step of the process. Here's our ultimate guide.

Stage 1: Initial Communications

When you begin your initial communications with a broker or M&A Advisor, follow these tips:

1. Use a Personal Phone Number

When speaking with your broker, use a personal phone number. This will keep them off office caller-id and ensure they don't accidentally tip off one of your employees by calling in. 

2. Use a Personal Email

Don’t email your broker on an email that your employees may have access to. Something as simple as leaving your email up at lunch could lead to an employee discovering your plans to sell. 

3. Conduct Meetings Offsite

Try to conduct your meetings with brokers offsite. This allows you to speak freely without worrying about employees overhearing or becoming suspicious. If possible, schedule tours of the facility after hours or on the weekend. 

Following these tips will set the stage for secure communications throughout the process. Once you’ve picked a broker and signed with their company, the next stage of protecting confidentiality is during the process of marketing your business.

Stage 2: Marketing the Business

To sell a business for the best price and terms, you want as many eyes on the opportunity as possible. But, the more people who see the opportunity, the higher the risk of breaching confidentiality becomes.

So how do you handle this double-edged sword?

Maintaining confidentiality during marketing starts with screening every potential buyer and limiting the information that is released.

Since every broker has a different marketing program, you’ll need to ask your broker to describe exactly how they protect your confidentiality during this stage.

How We Market Businesses For Sale

At MidStreet, our marketing package consists of three main components:

1. Blind Ad
2. Business Summary
3. Marketing Video

Once we’ve listed a company and complete these marketing materials, we start the advertising process with your company’s blind ad.

The Blind Ad

This advertisement is designed to describe the business opportunity without disclosing any identifying information. These ads typically focus on the industry, a general description of the location, the revenue of the business, and the business’s cash flow (also known as seller’s discretionary earnings or SDE).

Example: "Premiere Residential Roofing Contractor in North Carolina"

A blind ad is the best way to create interest without risking confidentiality. It reveals enough to get buyers interested and request more information.

Those who want to learn more must pass our screening process. This starts with a quick conversation on the phone to gauge their experience, financial capability, and seriousness.

If we feel comfortable at the end of this discussion, we send the buyer two forms:

1. Non-disclosure/Confidentiality Agreement
2. Personal Financial Statement

For the buyer to receive more information about the business, they must fill out and return BOTH documents. If they refuse, we move on to other candidates.

Data Room

Once candidates are screened, we provide access to a secure, online data room, often referred to as a virtual data room, or VDR. We've chosen to use CapLinked. Virtual data rooms such as CapLinked are different from Drop Box or or similar programs in that they employ the highest level of security to protect your confidential information.

At this stage, buyers are given access to the Business Summary and our professional marketing video (click for examples from past clients).

Caplinked allows us to monitor user access and behavior. We can see who entered, what they viewed, and how long they viewed it. It also allows us to grant and/or restrict access to information at a moment’s notice. It's a crucial tool to protecting confidentiality during the process.

In summary, we advertise publicly using a blind ad which you approve, reach out and pre-screen interested parties, house all of your sensitive information within a secure virtual data room, and selectively choose who is granted access.

It's important to ask your business broker or M&A advisor how they protect confidentiality at every stage of the deal. 

Stage 3: Due Diligence

The closer a deal gets to closing, the higher the risk to confidentiality becomes.

As part of their due diligence, buyers may request to meet with one or more of your key employees. This can pose obvious challenges and is often a major risk. 

Protecting confidentiality during due diligence really comes down to your broker's experience and expertise. In the example above, the buyer may refuse to purchase the business if their request is not fulfilled. 

Ultimately, it’s a judgment call. Can this key employee/manager be trusted to keep the knowledge of your sale confidential? If so, it may be appropriate to allow the buyer access. If the risk is too large and there are other buyers waiting in the wings, it may be worth the risk to deny their request.

The scenario above is just one of the many risks to confidentiality during due diligence. This stage of the deal is where the importance of an experienced business broker is invaluable.

What to do if Confidentiality is Breached

If word gets out that you’re thinking about selling the business, you’ll need to move quick. Here's what you can do. 

1. Control The Conversation as Soon as Possible

Like quarantining a deadly virus, try and get ahead of any rumors before they start to spread. If one of your employees finds out you’re selling, pull them aside and be open with them. Tell them why you want to sell, reassure them nobody’s position in the company is in danger, and ask them to respect your privacy.

2. Deny, Deny, Deny

Another option is to deny that you’re trying to sell the business. One clever deflection technique is to respond to questions about selling by saying: “Well the business is always for sale if the price is right!” This lighthearted retort is effective in brushing off your employee’s questions.

3. Tell Your Employees

Some business owners have had success with this technique. In our experience, older owners are more likely to tell their employees ahead of time because their retirement is not a secret. If you decide to go this route, be sure to reassure your employees that their jobs are not in jeopardy and remind them that a new buyer will rely on their skills even more than you do. 

Wondering how to tell your employees you’re selling the business? Take a look at our blog on the subject:

How to Tell Employees You’re Selling the Business

Final Thoughts

Confidentiality is common sense. Think twice before you send an e-mail, call your broker, or meet at your place of business. Make sure you select a broker who is committed to protecting your confidentiality at every stage of the deal. And finally, prepare to walk the tightrope of confidentiality in the later stages of the process.

Remember that a breach in confidentiality is not a death sentence. With quick and thoughtful action, any confidentiality problems can be resolved before a major problem arises.

And please, don’t let the fear of confidentiality hold you back from reaching out to a broker before selling your business. The rewards of working with experienced and trustworthy council far outweigh the risks of confidentiality.

If you have any thoughts, questions, or concerns, please feel free to reach out anytime.