Protecting Trade Secrets when selling your Business

Free PDF Download 11 Important Points You Need To Know When Buying A Business - By Scot Cockroft Name: Email:

Protecting Trade Secrets when selling a Business is vitally important! Most small business entrepreneurs and even business brokers think that the only thing that is important to protect in the sale of the business is all categorized under ONE topic: CONFIDENTIALITY. When this mentality can be the death nail for a business. It takes 40 something years for an oak tree to grow but only a few minutes for a chain saw to cut the tree down. In the same manner it takes you years, blood, sweat and tears to build a quality business that that has the qualities that make it attractive to a business buyer. Therefore it is imperative when selling a small business to begin thinking about the difference between trade secrets and items that are simply confidential.It is extremely important to protect both in the selling process but it is important NOT to disclose Trade Secrets to a business buyer many times until AFTER the business has sold. The question is what is truly a trade secret and what is simply confidential?

First Confidentiality should be protected from the general public and tire kicking buyers. This is something we will cover in a different article but the bottom line is YOU MUST PROTECT CONFIDENTIAL items until you know that the buyers is serious and can be trusted. In no way do you want your customers, clients, employees, vendors competitors and sometimes family members to know that the business is for sale. One common mistake is for business brokers and business owners to simply copy & paste information from the businesses website. Makes sense doesn't it? You already wrote the information and there is no reason to rewrite it.....OR IS THERE? when you do the reverse and copy and paste that material and place in GOOGLE search engine then guess what????? Your businesses website comes up. And there goes your confidentially. Yes, I will admit that most of your clients are not searching for businesses for sale to see if your business is for sale. The danger is more about unscrupulous buyers that do not have any bad intentions. But they start sharing the fact with people and even employees (when they walk into the business) that the business is for sale. Therefore, PLEASE make sure that when you are selling your business that you and your business intermediary is not lazy and truly understands how to protect confidentiality. But I digress.....

Second TRADE SECRETS, while trade secrets are confidential. Trade secrets must be protected at the next level from a simple confidential matter. As stated in paragraph one Trade Secrets, getting out can devastate your business. This is why we are extremely concerned that the wrong information not get into the wrong hands too soon. Infact when it comes to a trade secret it may mean that the buyer doesn't actually know until AFTER closing. Yes, this seems extreme but if they are truly a trade secret then ONLY owners and trusted employees should know the details.

So what is a trade secret? Well there is a legal term that is included in WIKIPEDIA's Version:

The precise language by which a trade secret is defined varies by jurisdiction (as do the particular types of information that are subject to trade secret protection). However, there are three factors that, although subject to differing interpretations, are common to all such definitions: a trade secret is information that:

• is not generally known to the public;
• confers some sort of economic benefit on its holder (where this benefit must derive specifically from its not being generally known, not just from the value of the information itself);
• is the subject of reasonable efforts to maintain its secrecy.

By comparison, under US law, "A trade secret, as defined under 18 U.S.C 1839 (3) (A), (B) (1996), has three parts: (1) information; (2) reasonable measures taken to protect the information; and (3) which derives independent economic value from not being publicly known.

AND there is a definition that we use for the use of selling small businesses:

1. Information that CAN not be generally known to the public that IF known to a competitor that it would have a negative effect on the businesses performance.

2. Is truly a "different way" of doing or approaching something within the business.

This can be the secret ingredient in a recipe. Actually I think that is the best definition and example of a trade secret. It covers most of the others: HOW bidding is done. This can be a special chemical that is used in a product. This can be a way that your business cut cost that no one knows is being done that is giving you the competitive edge.

As you can see quickly, there is a difference between this and the items that are confidential. While it is imperative to protect confidentiality when selling your business from the general public and business buyer tire kickers. Trade Secrets must ONLY be disclosed to the ACTUAL buyer. And since many times we do not know actually who is going to buy the business until at the closing table.... Guess what? Those trade secrets must remain secret until the $$$ MONEY $$$ is in the bank!

Free PDF Download 11 Important Points You Need To Know When Buying A Business - By Scot Cockroft Name: Email:

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