The decision to sell a business is never an easy one. Perhaps your company is not doing well and you want to get out of it before it collapses or you may just want to move on from the business and try something new in your life such as retirement or starting another business. In certain industries and niche markets, sometimes one of the best options is to sell the business to one of your competitors. It may seem like a strange idea to some business owners, but sometimes, a competitor will be your best chance of selling.
Protecting Your Business
It can be hard to tell if a competitor wants to take a serious look at your business to buy it or just to get access to your customer list, so cautiously releasing your sensitive data is a good strategy. Other than a casual discussion, it's best to say little, if anything, until you have a confidentiality agreement (or Non-Disclosure Agreement) in place that protects your information. By signing the document, the potential buyer agrees not to share or disclose any private or confidential information that they have obtained. Buyer naturally want to ask lots of questions upfront, to learn as much as they can about your business, but items like projections, strategies, and detailed financial data, shouldn't be shared until you have a signed purchase agreement and are going through the Due Diligence process (the buyer’s chance to request financial and operational documents and ask questions about the business to determine whether or not they would like to continue with the purchase). Even then, controlling the buyer's Due Diligence will help you to protect your data, just in case. Really sensitive information that a competitor would be most interested in, like employee, vendor, and customer lists shouldn’t be shared until closing or right before closing once contingencies have been lifted. During Due Diligence, it will be important for the buyer to see how many employees you have and what their roles are, but they don’t need their names or contact details. A buyer might want to know how many customers the business serves, where they are generally located, or what the average customer spend is, but they can get general or masked customer lists (Customer 1, Customer 2, etc.) during Due Diligence. Regulating what the buyer should be seeing at different points of the process is something that we know inside and out, so having a good business broker to ensure that this process runs smoothly is one of the best ways you can protect your business if it’s for sale.
How We Protect Confidentiality
As business brokers, protecting the confidentiality of a business we have listed for sale is our paramount concern. We have many layers of protection in place to ensure confidentiality. It can be difficult to market a business confidentially, but we have our strategies honed and perfected. Then, when a buyer makes an inquiry on your listing, they are put through a barrage of questions to verify their intent, motivation, identity, and ability to purchase the business. Only when they have passed our initial screening are they issued a Non-Disclosure Agreement (NDA) and written Buyer Questionnaire to fill out, sign, and return. We also take the time to verify the person’s identity before they are sent any information about the business whatsoever. We definitely want to make sure that the information they provided us with is true, and they are who they say they are. We are keenly aware that competitors will inquire about listings for sale in the area, and some are not interested in purchasing, only in getting inside information about the business that is selling. That’s why when we uncover that an interested party is actually a competitor, we will always get permission directly from the seller, before sending over confidential information about the business.
Types of Competitors
There are three types of competitors that every business has: direct, indirect, and near competitors. Direct competitors are these that cater to the same market and customers as your business. Indirect competitors only share a little bit of the market with you, and near competitors utilize a different section of the market than you. The type of competitor you choose to sell to depends on a variety of factors. Often times, business owners will want to sell to near competitors because they aren’t typically out to hurt your business like the other two types of competitors are. Regardless, you must always take precautions when selling to any type of competitor.
Why Sell To A Competitor
If you’re selling your business because it isn’t doing well, then your competition is likely the reason behind this. So, why sell to them? The truth is that selling to a competitor is probably the easiest way for you to get a sale. After all, a competitor is in the same business that you’re in and they understand how to run a business like yours. And since your business already has loyal customers behind it, this gives your competitor the opportunity to purchase your company and bring these customers over to their side. There is no other group of buyers out there who have more to gain from purchasing your business than its competitors. On the other hand, you must be careful that you aren’t negotiating with a competitor who is just out to steal information from you to help their business.
Benefits of Selling to a Competitor
Sometimes competitors are the most qualified buyers that you’re ever going to find. Competitors are already businesspeople which means they have verifiable finances and a vast reputation in the business community. Also, by selling to a competitor, you are selling to someone who can run your business properly because they already have a similar undertaking of their own in the same industry that they are running too. So, they know the ins and outs of the market and how to bring in more customers. That way, you can be sure that you’re leaving your business with a buyer who isn’t going to run it into the ground it as soon as you leave.
We Can Target Competitors
For the right businesses and industries, we will target competitors as potential buyers for businesses that we have for sale. Of course, this is done with the full buy-in and permission of the seller. If a seller would like us to confidentially search for a strategic buyer or competitor who’s possibly interested in growing their business via acquisition, then we have strategies and methods for testing the interest of competitors, without letting them know any details of the business that is actually for sale. If we do find a competitor that’s interested, then we will go through the entire process described above, to ensure that confidentiality is protected. This is just one of the ways that we go above and beyond for our sellers.
If you are a business owner who’s interested in learning more about how we sell businesses, please give us a call…we’d love to have a confidential chat with you about how we can help.