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Practical articles to help small business owners when selling and buying small businesses.

In a business sale how much confidential information do you give a buyer, and when?

Michael Kerr - Sunday, July 14, 2019

A guide to when and how to share confidential information with prospective buyers of your business.

In any small business sale process it will be difficult to answer these 2 questions; 

  1. How much confidential or commercially sensitive information do you need to share with potential buyers?
  2. And, at what stage do you release the information?
There is almost always disagreement. 

Buyers tend to want everything upfront, which is understandable. 

Sellers range from nothing to everything.

In some cases they will not agree to the release of virtually any information until the buyer puts in an offer. It’s particularly prevalent in the case of business sales within industries and between competitors (or potential competitors). It begs the obvious question – will they process ever start?

At the other end of the spectrum you can have business owners freely giving away any and all information on the basis that they have a non-disclosure or confidentiality agreement in place. This is usually done naively in the hope of getting a quick sale. Often the “potential” buyer may not have any financial capacity or even genuine interest in buying. 

How you respond to these questions and deal with the buyers and their requests for more information will be a significant determinant of the success or failure for the deal. 

So what’s the right amount of information? 

It’s not about the sheer quantity. And nor is it a matter for 'haggling'. 
Instead it’s a matter of timing, presenting the information properly (so it tells the right story) and ensuring you get something in return for sharing. On the last point it’s important to understand that the sale process is a two way process. And throughout the process sellers need to keep checking in with the potential buyers to enable them to assess that they are genuine and remain interested.   

Sellers also need to assure that the successful buyer will, in the end, receive all the information they need to buy the business. They just won’t get it in one hit. 

Some prospective buyers and their advisors will tell you they need everything and all at once to make a binding offer. This is usually a tactic to put you under pressure rather than a strong indicator that they are about to make an offer.  

With a well-run business sale process the release of information will be staged to ensure that you as business owner (and seller);

  1. Don’t waste time with tyre kickers, and
  2. Share only the minimum amount of information with the unsuccessful parties.
And smart buyers will also value this approach.  They’ll know that if they end up owning the business that all the confidential business information hasn’t been indiscriminately shared around. 

All of what I have said above assumes that all the right information has been prepared by the seller and their advisors and is in fact available. If this isn’t the case or you aren’t sure what needs to be done then you probably shouldn’t start the sale process.  

When is the right time to release information?

In a well-run business sale process you would only expect binding offers much later in the process and typically only after an indicative offer or Heads of Agreement. 

To get a potential buyer to put in indicative offer you are explicitly agreeing that further detailed information and investigation is required. 

So by staging the information release and going through the different offer stages you keep validating that they are genuine and that it is worth spending more time and releasing more information.

If you are interested in how we stage the release of sensitive business information then email me and we'll send you through a table that summarises our approach. 

All the best

Michael 
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