Every year countless great deals, deals that would have otherwise gone through, are undone due to a failure to properly utilize and follow confidentiality agreements. A failure to adhere to this essential contract can lead to a myriad of problems. These issues range from employees discovering that a business is going to be sold and quitting to key customers learning of the potential sale and taking their business elsewhere. Needless to say, issues such as these can stand in the way of a sale successfully going through. Maintaining confidentiality throughout the sales process is of paramount importance.
Utilizing a confidentiality agreement, often referred to as a non-disclosure agreement, is a common practice and one that you should fully embrace. There are many and diverse benefits to working with a business broker; one of those benefits is that business brokers know how to properly use confidentiality agreements and what should be contained within them.
By using a confidentiality agreement, the seller gains protection from a prospective buyer disclosing confidential information during the sales process. Originally, confidentiality agreements were utilized to prevent prospective buyers from letting the world at large know that a business was for sale.
Today, these contracts have evolved and now cover an array of potential seller concerns. A good confidentiality agreement will help to ensure that a prospective buyer doesn’t disclose proprietary information, trade secrets or key information learned about the business during the sales process.
Creating a solid confidentiality agreement is serious business and should not be rushed into. They should include, first and foremost, what areas are to be covered by the agreement, or in other words what is, and is not confidential. Additional areas of concern, such as how confidential information will be shared and marked, the remedy for breaches of confidentiality and the terms of the agreement, for example, how long the agreement is to remain enforced, should also be addressed.
A key area that should not be overlooked when creating a confidentiality agreement is that the prospective buyer will not hire any key people away from the selling company. Every business and every situation is different. As a result, confidentiality agreements must be tailored to each business and each situation.
When it comes to selling a business, few factors are as critical as establishing and maintaining confidentiality. The last thing any business wants is for its confidential information to land in the hands of a key competitor. Business brokers understand the value of maintaining confidentiality and know what steps to take to ensure that it is maintained throughout the sales process.
Succession planning is something that many business owners fail to think about; however, it turns out there are benefits to succession planning that might not be immediately obvious upon first glance. In this article, we’ll explore a recent Accountancy Daily article, “Succession Planning for Business Owners,” which details the wisdom and benefits of succession planning.
Accountancy Daily polled 500 SME owners and uncovered a variety of interesting facts. At the top of the list is that one-third of owners felt more confident about the future of their businesses when they had a coherent succession strategy.
In what can only be deemed a surprising finding, the poll discovered that 17% of respondents noted that succession planning actually brought them closer to their families. In short, the Accountancy Daily poll found that succession planning came with a variety of unexpected benefits. In other words, it is about more than preparing to hand one’s business over to a new party.
Author Glen Foster makes the point that business owners frequently underestimate the level of effort and time needed to sell a business. The fact is that selling a business is usually a layered process that can even take years to complete. Importantly, business owners must understand that in the time it takes to sell, the market may have changed or their own financial or personal situations may have changed as well. Additionally, selling can be an emotional and stressful process which further complicates the entire matter.
For most business owners, selling a business represents the single greatest financial move of their lives. As such, it is often accompanied with significant stress and anxiety. It is essential not to underestimate the emotional and psychological side of the sales equation. Properly planning years in advance for the sale of a business will help business owners prepare for the emotional and psychological stress that can result from both the sales process and the eventual sale itself.
A key part of the stress of selling a business is that business owners are often left wondering “what comes next?” after selling. Developing a succession strategy is a way to think through such issues well in advance.
Another key aspect of succession planning is to take the steps necessary to make sure that your business is ready to be sold. As Foster points out, you wouldn’t put a home on the market with significant problems, and the same holds true for your business. If you want to receive the optimal price for your business, then your business should be in tip-top shape. This means diving into your books and records and getting everything in order. Working with an accountant or an experienced business broker can be invaluable in this process.
A recent article in Forbes called , “Study Shows Why Many Business Owners Can’t Sell When They Want To” written by Mary Ellen Biery, provides some thought-provoking ideas. The article takes a look at an Exit Planning Institute (EPI) study that outlined shows that many business owners are not able to control when they can sell their businesses. Most business owners believe they can sell whenever they like, but the reality is that selling is often easier said than done.
In the article, Christopher Snider, the President & CEO of the Exit Planning Institute, noted that a large percentage of business owners have no exit plan in place. This fact is made all the more striking when you note that most owners have up to 90% of their personal assets tied up in their businesses. EPI’s study indicates that most business owners are interested in selling within the next 10 to 15 years, but most are unprepared to do so. According to the EPI only 20% to 30% of businesses that go on the market will actually sell. The reason for this is that most businesses have not been groomed and prepared for sale.
As of 2016, Baby Boomer business owners, who were expected to begin selling in record numbers, are waiting to sell. As stated in the Fortune article, “Baby Boomers don’t really want to leave their businesses, and they’re not going to move the business until they have to, which is probably when they are in their early 70s.”
The EPI survey of 200+ San Diego business owners found that 53% had paid little or no attention to developing an exit plan, 88% had no written transition plan in the event they were “hit by a bus”, and a whopping 80% had never consulted their lawyer, CPA or financial advisor about how and when to exit their business. Further, only 58% of surveyed business owners had done any type of formal estate planning.
The biggest concern according to the studey is that most surveyed business owners don’t know the value of their business. Viewed another way, most business owners don’t have a clear idea of how much their business is worth and if it will be adequate to fund their needs during retirement.
The survey suggests that many business owners are not “maximizing the transferable value of their business,” and are not “in a position to successfully sell their businesses so they can harvest the wealth locked in their business.”
All business owners should be thinking about the day when they will have to sell their business. Now is the time to begin working with a broker to formulate your strategy so as to maximize your business’s value.
In the interest of full disclosure, Richard Jackim, the managing partner at Sports Club Advisors, Inc. is the founder of the Exit Planning Institute and created the Certified Exit Planning Advisor (CEPA) program and designation. He sold EPI to Chris Snider in 2012.Read More