So much more than a simple piece of paper, Confidentiality and Non-Disclosure Agreements are arguably the single most important document as you consider moving forward with selling your business. In fact, the business broker you engage likely won’t even entertain a substantive conversation with a prospective buyer without first having a signed NDA from the interested party.
Why all the fuss? NDAs are the first line of defense in protecting and best positioning you and your business for a fair, successful and ideally lucrative sale. And breaching an NDA can cost violators big bucks.
Confidentiality Agreements – Key Aspects
In my opinion there are three key aspects to Confidentiality and Non-Disclosure Agreements or NDAs (although I could honestly write an entire book on the topic).
- The Seller-Business Broker Relationship
The first factor has less to do with prospective buyers than with the seller-broker relationship. A business broker should always provide a signed NDA to the prospective seller, so that the seller is assured that their conversations regarding the business are confidential. These conversations are nobody’s business but the business broker’s and seller’s. It is imperative that the seller has this layer of confidentiality assurance, so they are able to speak openly and freely with their broker, knowing that the broker won’t share that information with anybody. This agreement is akin to the confidentiality attributed to attorney-client privilege or private conversations one might have with their CPA.
- Legal Obligation
Next, Confidentiality and Non-Disclosure Agreements provide the seller peace of mind knowing that before his or her business broker has any conversation with a prospective buyer, that business buyer will have signed an NDA. This indicates to the business seller that the buyer is agreeing and certifying that they are the only person contractually allowed to review the provided business information. Signing the NDA also means they have a legal obligation to maintain confidentiality in every manner. This means not sharing the information provided with literally anyone, not contacting the business and not visiting the business.It seems so straightforward, yet you would be surprised how some folks don’t process just how comprehensive this confidentiality runs. A signed agreement means one can’t discuss disclosed information with their spouse, their business partner or their barber unless or until those people too sign the buyer’s NDA. Loose lips sink ships and the threat of having competitors, employees, vendors and other parties with vested interests prematurely learn about the sale of your business can drastically affect a positive outcome. The stakes are high, so everyone signs an NDA.
- Confidentiality Is a Two-Way Street
It is also vital that potential business buyers understand that they too are protected by the signed NDA and that contractually neither the business broker nor the business seller can share any information about the buyer with anyone other than each other. The NDA covers privileged and confidential information on both sides, giving each party the freedom to share pertinent information with the other, while being obligated to protect that confidentiality.
An NDA Doesn’t Open The Flood Gates
Keep in mind, having a signed NDA from an interested party doesn’t mean your broker is obligated to be forthcoming with information about you and your business. Even if a buyer has signed an NDA, your seasoned business broker will qualify that buyer before sharing your business information. If a potential buyer seems to be evasive, not serious or not qualified from an education, experience or financial standpoint, even a signed NDA is probably not enough to sway your business broker into a discussion with them.
In reality, many folks interested in buying or selling a business are doing it for the first time, so they simply aren’t well-versed in all the nuances of confidentiality agreements and NDAs. If you have signed a Non-Disclosure Agreement, but still have questions whether – or with whom – you may share confidential information, I urge you to simply call and ask the business broker.
Similar To An Insurance Policy
Think of Confidentiality and Non-Disclosure Agreements as insurance policies in a sense. Even just one employee, customer, competitor, supplier, vendor or landlord discovering prematurely that you plan on selling can be detrimental to your business and its operations – and at the absolute most sensitive time. Once the sale of your business is complete – or you and your business broker decide it is the most opportune time for disclosure – all those key players will learn about the sale. In this regard, timing is everything and is a process based on what is proven to elicit the best results.
As a matter of course at RMBA, our business brokers always provide Confidentiality Agreements early on in our conversation with owners who are even just thinking of selling their business. We take privileged information very seriously and believe that NDAs are one of the key foundations of trust, discourse and the successful sale of your business. To learn more about buying a business or selling a business, contact us to set up a Free Consultation at 303.474.5582.
Please note: If you’re looking for a “business broker near me,” we can help you if you want to buy or sell a business in Colorado, Wyoming, or New Mexico.