Why Confidentiality Is Important During the Succession of a Company

Truforte Business Group - Brokers Blog

Anyone who deals with corporate succession is faced with the question of which potential buyer is genuine and who can I trust. To ensure the best outcome, Truforte regards discretion as one of the most important success factors in the handover of a company and understands why confidentiality is important during the succession of a company. Confidentiality ensures business operations continue running normally which helps to maintain the company’s stability in the market and the eyes of its partners and customers.

Some of the negative effects of neglecting confidentiality during the succession of a company are detailed below.

The employees: Especially in medium-sized companies, a good relationship between the company owner and the staff is crucial to promote confidence in job security and maintain motivation and loyalty. If a pending change of ownership becomes apparent, this sense of security is jeopardized and weakens the employees’ bond with the company. This makes it easier for competitors to poach them.

The customer: In many SMEs, the company owner is a guarantee for the quality of the product and trust in the brand. When there are announcements about the replacement of this stable pillar, brand trust suffers especially in businesses that offer high-priced or premium quality products. Questions about the reliability or quality of the product with new management often arise.

The suppliers: A sustainable business relationship and stable processes are in the interests of suppliers. News of a change of ownership gives way to uncertainty as to whether the business relationship can be maintained under new management. In these circumstances, there is a tendency for suppliers to turn to other/new partners. This can lead to a disruption of deliveries and could also affect payment terms.

As you can see, indiscretion during a company’s succession can therefore have a detrimental effect on market success. The company may lose its attractiveness, its value, and can experience a drop in sales. Competitors understand this and can even use it to damage your company. You may find that there is not a serious purchase intention behind every expression of interest, but maybe just the search for information from rivals.

Truforte recommends conducting discussions only with a carefully selected group of people, secured by a confidentiality agreement. The advantages of anonymity and confidentiality far outweigh the possible disadvantages of narrowing the circle of interested parties.

To get expert help and advice regarding company succession, get in touch with us today.

Read more about why confidentialty is important in the role of a business broker.

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