Confidentiality

To help maintain confidentiality through the sales process, we recommend taking the following steps.

Set up a Private Email Address

We recommend setting up a personal email address to use throughout the transaction. The buyer will own your company email server after the closing and will, therefore, be able to access all emails on the server post-closing. You may not want the buyer to see emails between you and us regarding the negotiations, such as your willingness to accept a higher price. A private email address will also help eliminate the possibility of one of your employees seeing confidential emails. Please contact us using your updated email address if you choose to do this.

Alternatively, you can delete your email mailbox (e.g., [email protected]) to ensure the buyer cannot access your emails after the closing. If you use a generic mailbox (e.g., [email protected]), you will have to replace the mailbox with another mailbox prior to closing (e.g., [email protected]).

Refine and Rehearse Your Response

Refine

It would be best if you prepare for a confidentiality leak. You can plan several responses for use in the event a third party unexpectedly asks if you are selling the business. You can also role-play a variety of scenarios and how you can potentially react to each.

Rehearse

Once you have decided how to respond, practice your response with a spouse or other trusted family member. Rehearse your response so you are prepared if a third party asks if you are selling your business.

Track

Finally, be sure to ask where they heard the “rumor” so you can track it down and send the offending party a cease and desist letter (assuming they signed an NDA).

Communicate the Importance of Confidentiality to All Parties Involved

Let anyone who learns of the sale know that the sale must be kept confidential. This includes advisors such as your attorney or accountant.

In a recent transaction we worked on, the seller’s own accountant accidentally caused a breach of confidentiality. The accountant sent out copies of documents that listed all of the seller’s customers by name. The accountant did not thoroughly scrub the information to remove the customers’ names before sending the documents to the buyer. This situation can be prevented by selecting a specific person to review all information before sending anything to the buyer and emphasizing to advisors how critical confidentiality is.

Consider When to Tell Your Employees About the Sale

There are no hard-and-fast rules regarding when you should tell your employees about your plans to sell your business. We recommend telling employees about your plans either as early as possible or as late as possible. In addition, employees should be asked to sign confidentiality agreements or, if appropriate, non-solicitation agreements.

We recommend reading the following articles for additional tips:

Additional Strategies for Maintaining Confidentiality with Employees

Request that all employees sign a non-disclosure (confidentiality) agreement.

All employees should sign non-disclosure agreements (NDAs) before you tell them of your plans. Check to make sure the agreements are transferable in the event of a sale.

Consider asking key employees to sign a non-compete.

Consider asking employees to sign a non-compete agreement if these agreements are legal in your state. Sometimes, employees threaten to leave when a business is sold, open a competing business, and attempt to steal customers. A non-compete can help prevent this. If you can’t obtain a non-compete, ask for an NDA and non-solicitation agreement, at a minimum. Also, make sure these agreements are transferable in the event of a sale.

Consider asking employees to sign a non-solicitation agreement.

Non-solicitation agreements differ from non-compete agreements in that they prohibit employees from actively soliciting your client base or other employees if they resign or are terminated. They can compete but cannot solicit your customers, clients, or employees. If a non-compete is illegal in your state in an employment context (e.g., California, North Dakota, Oklahoma, etc.), use a non-solicitation agreement instead. Also, make sure these agreements are transferable in the event of a sale.

Take Extra Precautions When Negotiating with Competitors

Keeping the details of your business secure and confidential is critical at any time, especially when a competitor approaches you. Here are several strategies you can employ to protect yourself when selling your business to a competitor:

  • Contact buyers based on increasing stages of risk.
  • Prepare a custom or buyer-specific NDA.
  • Thoroughly screen buyers.
  • Release information in phases.
  • Know what information to release and when.
  • Mark or stamp documents “Confidential.”
  • Appoint a neutral third party to facilitate due diligence.

We recommend reading the following articles for additional tips:

Additional Tips

Following is additional information on issues related to confidentiality: