Selling Your Business? Disclosing the Secret Sauce
19 May 2025: Selling Your Business? Disclosing the Secret Sauce
The following text is the opening paragraph of an article that came across my desk recently:
“Many business owners make one critical mistake when selling: they share too much, too soon. A potential buyer expresses interest, asks for financials, and without thinking twice, the owner sends over a full profit-and-loss statement, customer list, and operational details. Then the buyer disappears.”
This is one of the reasons we advise owners that trying to sell their own business is a bad idea. To quote an old TV show, “Who was that masked man?“
Who, indeed? The seller has no idea.
Tire Kickers and Other Nefarious Scoundrels
But by the time the seller understands that the “buyer” wasn’t a real buyer, the damage has been done. Confidential and proprietary information is now in someone’s hands and there’s no telling how that data will be used – or spread. Where will it be tomorrow? next week? next month?
Tire kickers are legion but they’d probably represent the least danger to the owner and his or her business. What if it was someone sent in by a competitor or someone else snooping for information? Someone sent in by a disgruntled ex-employee or vendor?
A competitor may be interested in your business’ performance – a relatively benign issue – but they may also be interested in poaching one of your trusted employees. Or maybe what you’re paying your employees – or your suppliers.
A disgruntled ex-employee may be trying to find a way to hurt you or damage your business. With enough information – information that should be well-guarded – this would be pretty simple.
Selling your business may be the general goal but a successful sale usually occurs when you find the right buyer
Control the Flow
Disclosing critical details too early creates unnecessary risk. Buyers should be qualified before you give them any sensitive business data. The best way to manage this is to work with a professional business intermediary. But if you’re determined to manage this yourself, develop a proper marketing strategy and the collateral pieces that will support it. Part of this plan involves a disclosure sequence that will help keep your data safe, assure you know who you’re dealing with and pretty much eliminate the danger involved in a premature disclosure.
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To learn more, check out Resources in The Brokers Roundtable℠
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The way we handle this for our clients is a multi-step process that’s easy enough to replicate – provided you’re not also continuing to run the business you want to sell.
Our marketing starts with the creation of an Offering Memorandum (OF) or Confidential Information Memorandum (CIM). This is usually a 20- to 30-page document that attempts to answer every question a buyer might have. Our goal is to make the due diligence period one of confirmation rather than discovery.
But anyone who is familiar with long legal documents – 70- or 80-page commercial leases are perfect examples – knows that the attorneys who prepare such documents generally also prepare a document “abstract” (lease abstract in the case of commercial real estate); a 2- or 3-page synopsis listing the salient points contained in the larger CIM. We do the same thing. In our business, though we refer to it as an abstract it’s sometimes called a “teaser”.
The abstract gives potential buyers a broad overview of the business without revealing confidential details. It’s a general description of the business – including industry, revenue and a justification of the asking price – but excludes specifics such as customer lists, supplier agreements, employees, profit margins and even the identity of the business. It’s meant to winnow out tire kickers and other unlikely buyers who will just waste your time. If a buyer is serious, they will request more information.
Confidentiality and Non-Disclosure
This is the point – step 2 – when a Confidentiality and Non-Disclosure Agreement (NDA) is introduced.
An NDA is the first layer of protection when discussing a business sale, but a template – something generic – is not necessarily what you want. The NDA usually needs to be pretty specific and should define what is considered confidential, restrict the buyer from sharing information with third parties and outline a legal penalty for breaching the agreement among other provisions.
Occasionally, we hear from a broker in one of our weekly Office Hours sessions that a buyer is unwilling to sign an NDA. The broker wants to know how this should be handled. Refusal – even hesitation – to sign an NDA is an immediate red flag and all discussions with such an individual should cease. A serious buyer understands that business sales require discretion and should have no issue agreeing to confidentiality before reviewing financials or operational details.
Step 3: Qualifying the Buyer
Does the potential buyer have any experience running a business, either as an owner or manager? Are they familiar with the industry? If there’s any likelihood of any seller financing – a high probability in many cases – it’s important to know whether the buyer is likely to run the business successfully or run it into the ground.
Another qualifying issue is financial. Can the buyer pull off the purchase?
If he or she doesn’t have the cash (few buyers do), does the buyer have the ability to finance the acquisition? Without knowing their ability to actually do the deal, you’re wasting time that could be better spent on growing your business and possibly disclosing information that should be held close to the vest.
Not every buyer who expresses interest is financially capable of purchasing a business – or, more specifically, the business they purport to be interested in: yours. Legitimate buyers should be able to provide proof of funds, display an understanding of the buying process and demonstrate a clear intent to purchase. If they hesitate or refuse to provide such evidence, they are likely unable to get the funds for the acquisition – or they’re tire kickers; just not serious.
Selling Your Business: The Drip Method
Even after an NDA is signed and the buyer is qualified, access to sensitive details should be controlled. A structured disclosure process ensures that confidential business data is shared only when necessary and only with qualified buyers.
In the early stages of discussions, financials should be shared in general terms, without detailed breakdowns of specific revenue streams. Specific details such as customer names, supplier agreements, purchase contracts, leases, etc., should remain mostly confidential until a buyer moves into serious negotiations. One effective strategy is to use redacted documents, removing names and key identifiers until trust is established.
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REALTORS! Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successfully sell businesses.
Don’t Miss Out on the “Silver Tsunami”!
Business owners have lost valuable relationships because buyers contacted their clients or suppliers directly. Keeping critical information private until the later stages of negotiations protects these relationships and prevents competitive risks.
Consider using a data room vendor (there are a couple who are Members of The Brokers Roundtable℠) which will allow you to control who sees the data, when they see it, how long they have access to it and limit the ability their ability to share it.
The Bottom Line
Selling a business is not just a financial transaction, but also an emotional process that requires time, energy and discretion. Many owners try to handle it alone, only to realize that managing buyer inquiries, confidentiality and negotiations while simultaneously running their business is an overwhelming task that is likely to hurt the very business they’re trying to sell.
A qualified M&A advisor or broker serves as a gatekeeper ensuring that only serious buyers gain access to the business’s sensitive details. They help vet buyers, manage NDAs, and control the flow of information at each stage of the sale. An advisor also ensures that potential buyers do not bypass the owner to contact employees, suppliers, or clients directly.
Professional brokers also serve as guides. Few business owners have been through the process of selling a business, a journey that is often arduous and complex. Most business owners lack experience in structuring deals, which can lead to undervaluing their company or agreeing to terms that do not serve their best interests. An experienced advisor brings expertise to the table, reducing risks and increasing the likelihood of a successful sale.
“Economists’ unanimity that bad business is ahead is the most reassuring news possible. It’s very unlikely that this will be the first time they’re right”
– Malcolm Forbes
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at
jo*@Wo*******************.com