Confidentiality is important in the sale of a business.
It stops staff from seeking more secure employment if they believe uncomfortable changes will come their way.
It helps avoid awkward conversations with friends who will be keen to find out how rich you will become.
Customers look for alternatives when relationships are ending.
Confidentiality Agreements
A tool used to manage this is a non-disclosure or confidentiality agreement. The buyer agrees to confidentiality before we provide information to them.
The theory is brilliant and we use routinely these agreements in business sales. Sometimes however the outcome is less than hoped.
When the seller of a business is a member of a strong ethnic community, these agreements receive a rather casual treatment from buyers in that community.
South Asian communities such as from India and Pakistan rely on their networks. Particularly when purchasing a business. In my experience they share information with those that are not party to agreements that they have given to the business broker. They did this out of necessity. Not to upset the broker.
The necessity to keep a large group of stakeholders satisfied is the reason that so many of the buyers associates are privy to the information guarded by a confidentiality agreement.
South Asian Business Buyers
The ethnic communities that successfully establish themselves into the broader society are those that help each other.
It is an old phenomenon and has many precedents. Waves of immigrants who have come to this fabulous country seeking a new life have done this. Their source of information and resources such as advice and finance come from the community. It has allowed new entrants to use connections to establish themselves.
A strong connection to a community is a two-edged sword.
There are many gatekeepers in the community and many agreements need to be made before a buyer can make an offer.
This affects sellers of a business where the buyer is likely to be from the same community.
The seller fears sharing personal information with people they would normally associate with only convivially.
The broker’s job is to protect the seller when the community sees a fellow community member’s business on the market.
The Importance of Trust
It is crucial that the seller and broker trust each other. This has to happen anyway, but it is even more crucial here. When a buyer dominates a seller, they find it harder to maintain objectivity during negotiations.
This is worse when the buyer has greater wealth, more experience or the respect from the seller. On one occasion, a buyer took control of one of my sellers by promising they would become an essential part of the empire they were building. It ended in tears.
Here are Some Tips and Traps to Help
- Resist Buyers who insist on talking directly with the seller before it is prudent.Be careful with inspections.
- They can be a trap to put pressure on the seller when they are most vulnerable.
- Make sure the buyer knows not to talk to staff about the sale. Informing staff about a pending sale is an integral part of the transaction that has to be managed. I have had buyers ask staff if they are happy where they are working. Not anymore. Now they’re apprehensive.
- Be wary of buyers who ask for a trial of the business to check the figures. You may have to dynamite them out and the collateral damage is huge.
- If English is the second language for the buyer, it is helpful to confirm communication in writing. This will lessen the scope for misunderstanding.
- Take buyers from immigrant communities seriously. They have more reasons than most to buy a business. They just do it differently.
- It is worth putting in extra effort with an immigrant buyer. They struggle with communication and local customs that make them appreciate the help of someone who cares.
Keep It Professional
There is a quid pro quo element to how community members deal with each other. Although this is an admirable it can create problems in a professional environment and you get a better result if relations remain professional.
A business that is properly marketed with arms-length principles will get a better price than one that is sold in a closed shop environment within a community. The seller prepared to pay the extra initial costs will reap this benefit.
The broker that is prepared to cut corners to win a seller’s listing is not doing themselves or the seller any favours. Using short cuts takes way too long.
Where Two or More are Gathered There is Strength
There is a further complication when dealing with a member of an immigrant community. It is quite common in the South Asian communities and provides them with a powerful benefit.
They have a particular member of the community acting for many others. It is brilliant and quite effective. It turns the tables on the seller of a business who is engaging a market of many buyers. Instead, a buyer is playing a market of many sellers. It provides a powerful reason for a seller to engage a broker.
It does not pay to play the urgent game in those circumstances. These informal buyers agents switch their attention to other targets when negotiations go against them. A broker who can deal with many buyers evens the equation for the seller. A seller acting alone is a simple game for these buyers.
Stick to the Plan
The good news is that they usually come back. They need to buy a business for one of their supporters and they are under similar pressure to the broker to get a deal.
My experience with the immigrant South Asian community and with the people they appoint to help them buy a business has been positive. It took a long time to figure it out, as so many simple things are. The key is patience.
One business that is popular with these communities that I listed in 2016 is about to settle in 2021. It was during this period that the vagaries of dealing with immigrant dawned on me.
If you a member of these communities and need help to negotiate a sale, I would be happy to help. If you are not a member of these communities and have businesses they seek, you would benefit from my help.
