When you sell to a competitor, it can be risky because you have to disclose certain vital business information. To protect yourself, you need to go about it strategically. There’s a fine balance to what you should reveal to get the best price while minimizing your risks at the same time. Here are some ways to avoid getting burned when selling to a competitor.
Make sure you’re ready to sell
If you approach a competitor, you need to know the value of your business and potentially be ready to walk away if the price isn’t right. You also need to make sure your business is ready for a sale by preparing all the necessary documents.
Business assessments include acquisition “diligence” preparedness to help companies reduce any risk when selling a business. Peterson Acquisitions will help you with the due diligence that is the first part of any contemplated sale and is the formal process where each party examines the ability of the other party to deliver on what is promised. This helps to prevent any surprises, on either side, once the deal is done.
Put protective agreements in place
Your first step should be getting a potential buyer to sign a non-disclosure agreement (NDA). This means they must keep the information you share confidential and if they don’t, you can take legal action.
Once the NDA is in place, you can start talking about your gross revenue, product lines, geographical footprint etc. A good NDA will prevent buyers from doing things such as soliciting your employees, your customers or your vendors. If a sale doesn’t go through, you don’t want a buyer to use your customers to grow their competing business.
Set business buyer expectations
If you clearly communicate to any potential buyers that you will be using a small business M&A firm to assist you with the process, competitors will take note that they won’t be able to take advantage of you. Firms like Peterson Acquisitions have plenty of experience in assisting businesses to sell to competitors and can avoid the pitfalls.
Those within the same business or industry sector may be using the premise of a business purchase to learn more about the inner workings of your business. But competitors who are not really serious about buying are likely to fall away when they know you’re being assisted by experts.
It is acceptable to ask buyers why they want to buy your business and their objectives. You can find out whether they have the capital to buy your business and how they would finance the business acquisition.
You can also ask whether they have ever bought any other businesses in the past and how this turned out. You can find out what conditions your business has to meet for a sale to take place. If you don’t meet them, there is no point in negotiating.
Progressively disclose more information
Even if you have protective agreements in place, you shouldn’t ever give too much information too quickly. For instance, it is wise to withhold your customer list until after the transaction is complete. You can provide the buyer with the number of active customers, without giving names and contact information.
When you’re considering selling to a competitor, you need to think twice before divulging proprietary technologies, trade secrets and intellectual property. Buyers do have a right to look at all the inner workings of the business before signing a purchase agreement. However, this should happen on your terms and you should be driving the process.