Selling a business is a complex process. Unlike the sale process of a residential home, the sale of a business can take 9 months or more to close. The information process flow is also complex. The first level of information Sellers share is a Teaser and CBR (confidential business review) or CIM (confidential information memorandum). Buyers review this information to determine if they want to make an offer to buy the business. Once an asset purchase agreement is signed, there is a second level of information sharing - Due Diligence Information. During this period, the Seller shares certain confidential information but to a certain extent. In a typical asset purchase agreement, the Buyer can cancel the contract prior to the end of the Due Diligence period and get her earnest money returned. However, after the Due Diligence date (i.e., Post Due Diligence), the Buyer typically commits the entire earnest money amount to the escrow agent as non-refundable. Only after the Due Diligence Period expires does it make sense for the Seller to share sensitive, highly proprietary information (the third level of information sharing) with the Buyer. Here is a list of 4 third level of information sharing things Sellers should not tell buyers until the Due Diligence period expires and the earnest money is non-refundable:
Client Contact Information. The Buyer has no need for specific client contact information prior to closing. It is better to disguise the contact information (e.g., Jane Doe 001) but leave the detailed account activity intact. If the deal falls through, you do not want a potential competitor sending direct mail to your client or calling them.
Employee Contact Information. Never introduce the Buyer to your staff until necessary. That time generally comes after the Due Diligence period has expired. Employees need to only know the Buyer when it is certain that the business is going to be sold.
Trade secrets (the secret sauce). During the Due diligence period, it is better to describe how you make your money than to show the Buyer exactly how to. You must protect your proprietary processes, procedures, and documents until you are certain that the Buyer cannot back out of the contract.
Income generated outside the business for sale. This has nothing to do with the business operation for sale. If disclosed during Due Diligence, it could distracts the Buyer from what is important. The Due Diligence period is for matter associated with the business, and nothing more.
Be mindful of what you say and when it is appropriate.
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