Some time ago, a lawyer friend of mine called me to refer his client for the sale of their business.  A gentleman had walked into the business and told the front desk, “I hear your business is for sale and I’d like to buy it.”  [The business was  not for sale but maybe could be for the right price. -- Could I help?]

My response surprised my friend.  Do not hire me; this prospective buyer is an idiot.  He does not know the first thing about buying a business and would not likely turn out to be a suitable buyer.  If the employees think the business is for sale, they may leave.  This person lacks the discretion to be a prospective buyer; he is a wrecking ball.  He is much more likely to damage the business than to buy it.

Assuming that your prospective buyer is not a wrecking-ball, the starting point in selling your business should be to enter into a non-disclosure and confidentiality agreement, a/k/a an “NDA.”  NDAs are ubiquitous in today’s business environment and business owners have become used to signing one-size-fits-all NDAs, usually without legal review.  Stop that!

Please consider this – you have worked the better part of your lifetime to build this asset.  Whether or not you once thought that you would pass it on to your children, for whatever reason, you are not.  So now, this business is not your children’s future, it is your retirement plan.  This is how I regard the significance of an engagement to function as your counsel in selling your business.  Your own decision-making needs to reflect this reality, beginning with the language used in the first document you will sign -- the confidentiality agreement.

However, a confidentiality agreement for the sale of a business is not a one-size-fits-all NDA form.  There are at least three issues that are unique to the confidentiality agreement for the sale of a business – three ways to needing your retirement asset from the potential conduct of the buyer.

First, the evaluation material you will be providing the prospective buyer covers everything someone needs to know to successfully compete with you.  The misuse of this material will be far more harmful to your business than in any other transaction for which you have signed a standard NDA.  Who has access to the evaluation material and what they can and cannot do with information are critical if this sale does not go through.  A sale of business confidentiality agreement should discuss these specifics.

Let us say the buyer looks at your evaluation material and makes an unacceptable offer, and your counteroffer is too high.  At this point, you need a comfort factor that the buyer will not become a competitor of yours if they are not already.

That is why, second, your confidentiality agreement should include restrictive covenants to protect you from the ex-buyer soliciting your customers, vendors, and employees.  I add vendors to this list because in some businesses, the vendor relationships are just as important to the success of the business as the customer relationships.

A third issue, and one that is unique to the sale of your business, is the fact that you want to control who within your company will come to know that you are possibly selling the company.  A standard NDA will assume that anyone at your company is in the loop, but a sale-of-business confidentiality agreement should restrict any contacts from the buyer to you and whomever on your team you need to help you sell the business.  I always name names in my confidentiality agreements. 

On a side note, who should you name in addition to yourself?  For larger companies, this will be the top financial person on the payroll.  For smaller companies, this person will be the owner’s right-hand person – no matter the title.  I am looking for someone who knows about the vendors, who knows about the customers, who knows about the employees, and who knows what contractual documents exist that provide the underpinnings of each of these relationships.  Because I have often worked with wonderfully competent controllers who have had these competencies, in my mind, I regard this person as your “controller person.” 

You should include a “controller person” in your sale of business team.  Your “controller person” should be named in your confidentiality agreement.  If you do so, what you spend on me to represent you in the sale of your company will be less and your transaction will move smoother along its agreed timeline.  Please name your “controller person” in your sale of business confidentiality agreement, and plan to include him or her on your team from Day One.

My Take:   Selling your business is too important a transaction to not do it well from the beginning.  The first step is securing a confidentiality agreement that will protect your business if the transaction does not result in a sale.

May you find joy in what you do and who you are with.