How to Keep Negotiations Under Wraps

There are several ways to reduce your exposure and protect the ensuing negotiations, including confidentiality agreements, letters of intent, controlling the release of financial documents and access to customers.

Before the negotiations and investigation process begin, insist that a potential buyer sign a confidentiality or non-disclosure agreement before releasing any information. This agreement restricts a buyer to using any selling information only in determining whether to purchase your business.

The confidentiality agreement also should prohibit a potential buyer from contacting your employees, customers, suppliers, agents or anyone else connected with your company without your consent.

It also should provide that the buyer will have only limited access to your trade secrets during the investigation. It is critical to protect your trade and business secrets. Also, include language which stipulates that a potential buyer will not attempt to hire any of your employees.

Work closely with your corporate finance attorney, accountant, financial consultant, investment banker or other members of your infrastructure to assist you in structuring the deal. To ensure confidentiality, hold your initial meetings off-site.

Before releasing any company information, determine the buyer's ability and financial resources to purchase your business. Request financial statements from privately held companies or personal financial statements from an individual buyer.

Ask for references and check them out for honesty and financial capability.

Control the release of your company's financial reports in the early stages of negotiation by first providing only summaries rather than complete, audited financial statements. Even more important, arrange for the release of your company information in stages after certain milestones are met.

For example, have the confidentiality agreement signed first, then release a few key pieces of information about your company.

If the buyer is still interested, it may be necessary to have an independent third party value your business. If the buyer still wants to proceed after reviewing the business valuation, then ask for a letter of intent before releasing any more information.

The last pieces of information to release are your customer lists, which should take place immediately before or after the closing.

If the buyer insists on talking to your customers, contact them first and explain that you have hired a consultant who will be calling them to ask some basic questions about their relationship with your business. Then make sure the buyer identifies himself or herself in this manner.

By following some of these tips folks can be rest assured that there sale will be under wraps.