Confidentiality Agreements When Selling a Business


When selling or buying a business, confidentiality is a prime concern. Information regarding any pending business sale should be kept from:

  • The media;
  • The competition;
  • Your customers;
  • Your suppliers.

This need for confidentiality is the reason why business sellers should always insist on a confidentiality agreement with a potential buyer before even discussing the value of the business.

Why do you need confidentiality agreements before discussing a business sale? There are a lot of very good reasons why the buyer and the seller want to keep things quiet when discussing the sale of a business.

Customers Can Get Anxious

Regular customers to a business can go through a variety of emotions when a business is up for sale. The variety of feelings a customer can feel include:

  • Feeling abandoned by the owner;
  • Wondering what is wrong with the business;
  • Fear of what a new owner would do to the business;
  • The feeling that the current owner does not respect the business.
  • Customers always want to be made to feel like their continued patronage is important. The leaked news of an impending sale could cause customers to start doubting their loyalty to a business that they feel cannot stay loyal to itself.

    Rumors of a business sale among repeat customers can be dangerous to the current owner as well as the prospective new owner.

    Vendors Can Get Nervous

    Some vendors do not like the idea that one of their customers may be owned by someone else. If your vendors find out that you are considering selling the business, then they may revoke your credit terms and force you to pay cash. Some vendors may insist on a new purchasing agreement that shields them from any changes the new owners could make.

    Upsetting your vendors will definitely cause problems for your business in the short and long-term.

    The Competition May Smell Blood

    Whether it is a fair assessment or not, companies in the process of getting sold are usually portrayed as being unstable while the process is going on. If your competition hears that you may be selling your business, then the first thing the competition will do is call your customers and try to make your pending sale sound like doom for your customers.

    Another issue with the competition and a pending business sale is that there may be information released during the sale process that could work against your company.

    Your company may have a reputation for generating a certain amount of revenue, which has helped to stabilize your place in the industry. But if it gets out that your revenue is below expectations, then that could soften your position with consumers.

    The Buyer May Have Problems Getting Financing

    When information leaks about a potential business sale, it hurts the buyer and the seller. When lenders start to see rumors leaking out about a company’s value, it could make it very difficult for the buyer to get the right financing for the deal.

    Lenders may react to the rumors by saying that the business is not worth the amount of financing that the buyer is asking for and that can compromise the entire deal.

    Other Buyers Could Be Scared Away

    If you are selling a business, then there is a good chance that the first prospective buyer you talk to may not be the one who actually signs on the dotted line. If those negotiations do not go well, then the lack of a confidentiality agreement would allow that disgruntled prospective buyer to go out and spread rumors that could damage any chance you have at finding another buyer.

    We all want to believe that a handshake is enough to make a business transaction confidential. But the truth is that a confidentiality agreement is an essential form of protection for business owner who is selling their business and for the prospective buyer.

    A good confidentiality agreement can insure that the entire process is beneficial for the seller and the buyer.

    Without a confidentiality agreement, the seller could be exposing themselves to irreparable financial harm.

    Confidentiality Agreement Layout

    Please visit the following link to download and example of a confidentiality agreement:

    Business for Sale Confidentiality Agreement