Confidentiality and Selling a Business
It’s generally understood that the process of selling a business should be done under strict confidentiality. I discussed those reason in a previous blog, however, one of the trade-offs is that marketing a business confidentially can greatly increase the time to sell. Business owners should know that selling a business can take 9-18 months, but in some cases, they may not have the luxury of time to allow for the normal process. Unfortunately, there are not many strategies available for a business owner to accelerate the sale of their business. Selling the business “openly” may be the first, and only option, to speed up the sale process.
Why can an open marketing process speed up a business sale?
- Confidential business-for-sale listings are purposefully vague, so the right buyer may not identify a good opportunity.
- Knowing what/who the business is can impart a lot of qualitative information to a buyer that isn’t obtained in a generic ad.
- Buyers that do respond are already “interest screened” since they know exactly what the business is.
- The brand you’ve built to attract customers can also attract a buyer.
However, there are potential downsides to marketing your business publicly and openly. The major issues:
- Staff, customers, and vendors may assume the business is in peril or distressed which can lead to employee turnover.
- Customers may change their behaviors, assuming the new owner won’t meet their needs or expectations.
- The business may become “shop worn.” If it’s on the market too long, it might be perceived as a bad opportunity given that no one else has bought it.
- Once public, the owner may mentally “check out” and the business performance could suffer.
In general, an open sales process has more downside than a confidential sale so there are a few strategies that should be evaluated prior to going to market. If you aren’t using a professional business broker or other intermediary, you should consider the following:
- Prep a list of possible buyers to approach simultaneously when you “go public.” Since the sale will be common knowledge there is no downside to contacting competitors or industry players.
- Commit to the open advertising for a 2–4-month period and then shut it down for a while. If the business is on the market too long and may become “shopworn” and less attractive.
- Have a Plan B. Your business may not sell quickly or at all. If you can’t afford to walk away or shut down the operation, be prepared for the long term.
Listing your business openly may not result in a quick sale, or alternatively, with the clock ticking, an owner will have to concede on price or terms. The decision to market your business for sale openly should not be made without understanding all the implications. If time is of the essence, we recommend you consult with an experienced professional to review your options.
