The sale of your business is unlike any other sales transaction you will ever participate in, either personally or professionally.
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To get an idea of the complexities, imagine what it would be like to locate a buyer for your house without hanging a "for sale" sign on the front lawn, placing an ad in the local real estate section, or telling your kids about your plans. Sound difficult? It is – but that's not unlike the process it takes to sell a business.
You have a lot of reasons to maintain discretion before and during the sale of a business. If you're careful, your employees, suppliers, vendors, and competitors won't know your company is on the market until you have signed a Letter of Intent with a qualified buyer.
Your broker carries much of the responsibility for protecting the confidentiality of your business sale. If your broker breaches confidentiality it could have disastrous consequences for the value of your business. A confidentiality agreement with your business broker can insulate your company from indiscretions and lay the foundation for higher offers from buyers. As a seller, here's what you need to know about broker confidentiality agreements.
Reasons for a Confidentiality Agreement
Confidentiality agreements accomplish at least two very important things during the sale of a business. First, they protect the integrity of the sale by forcing your broker to initiate contact with targeted prospects rather than confusing the sale with an influx of prospects brought in through a general listing. Second (and perhaps more importantly), they preserve the value of your business by reducing the risk of key employees or suppliers from jumping ship before the sale, driving down the worth of the business.
A signed confidentiality agreement means that the broker is obligated to protect the confidentiality of the information specified in the agreement. This includes your company's financial data and other sensitive information, but can also include disclosure of the sale to protected parties. If the stipulations of the confidentiality agreement are breached, the broker will be held accountable according to the penalties and terms described in the agreement.
Prospective Buyer Obligations
Before a prospective buyer is given access to company information, they must sign a separate confidentiality agreement that restricts their use of privileged information. This agreement prohibits disclosure of protected information to parties that have not been approved for access by the broker and/or seller.