You would think selling a business is not unlike selling your home. The more you get the word out about your plans to sell the house, the more suitors you’re likely to find. Unfortunately, the same can’t be said when you want to sell a business, manufacturing or otherwise. When it comes to planning your sale, disclosure, however well intentioned, comes at a high price. Discretion prevents your business from being compromised by competitors, customers, employees and others. A busted transaction can cost you meaningful dollars and time. To the point you can expect a busted transaction to delay your transaction 2 years and potential a turn of earnings.
Priority 1: Keep Your Competitors in the Dark
In the world of business, even in the manufacturing industry, competitors can be ruthless and use their knowledge of sale against you. In many instances, competitors will attempt to steal customers by undermining their confidence in your business. Many sellers, with the best of intentions, will inform competitors in a shotgun strategy to find the best suitors for purchase. For some businesses, this can mean hemorrhaging money as competitors attempt to poach customers, or worse, going out of business altogether. As a general rule, competitors won’t make the best suitors for your business. Attempting to sell directly to them is a dangerous proposition.
Priority 2: Keep Your Current Customers Out of the Loop
As mentioned above, your competitors will attempt to poach customers away from you if you disclose your intention to sell. In the same way, current and prospective customers might feel less confident to stay invested in a relationship with your company if they are unsure about future management. By telling your customers, you also run the risk of rumor spreading to your competitors, which will only exacerbate the problem. The buyer will no doubt have questions about customer retention and much of your business’ value relies on your relationship with your current customers. Especially before a sale or taking your company to market, make sure that you have a plan to keep your customer relationships strong both before and after the sale. Businesses get bought and sold every day and there will be time to discuss the ownership with the customer post transaction. There may be unique situations when a customer needs to be reassured before the transaction, but again waiting until after the close is a preferred approach.
Priority 3: With Few Exceptions, Don’t Tell Employees
Of course, it will be beneficial to tell employees if you’re interested in selling your business, provided the information stays within a tight circle. This is especially true if you plan to sell the business to an employee or if a current employee will eventually be managing the business. Otherwise, informing employees of your intention to sell could make some of them nervous. They could abandon ship in search of a more stable position. If that happens before the sale, the value of your company could drop substantially. As with leaking information to customers, you also run the risk of information eventually reach both your customers and your competitors.
Information Spreads Like Wildfire
The moral of the story: Be especially diligent about how and with whom you show your intention to sell. There are benefits to sharing with potential buyers (provided they aren’t competitors) and seeking outside help to generate a valuation of your business or grant investment advice. If you tell the wrong people, or individual, you could immediately sabotage your sale and cause irreparable damage. Information, especially in the digital era, spreads lightning fast. In these scenarios, the old adage “loose lips sink ships” could not ring more true.