Wine loosens lips. At dinner parties or family gatherings wine can cause people to relax and increase their enjoyment of the evening. That is, until your brother-in-law has a glass too many and tells everyone about his recent gambling adventure when he lost $1,000 at the craps table. The story might be amusing if you had not recently heard how their family was struggling to make ends meet. So your sister is embarrassed about her husband and your mother is quickly picking up the dishes and trying desperately to change the subject.
When you are in negotiations to buy or sell an optometry practice, the details of your deal may be one empty wine bottle away from becoming common knowledge at the next social gathering. You can assume the people with whom you are negotiating won’t talk, but what if they do? Insisting on a confidentiality agreement up front for all buy-sell negotiations communicates the importance of keeping lips sealed until the deal is done.
Here are seven key components of a confidentiality agreement.
- Confidentiality – It’s a given, but make sure you have it.
- Material exchange – When the buyer receives information about the seller, the documents exchanged are for informational purposes only.
- Limits on disclosure – The buyer and seller agree to take responsibility for any breach by respective advisors.
- Buyer can inform – This outlines who the buyer will inform such as employees, attorneys, accountants, consultants, and bankers.
- Destroying the evidence – Any documents distributed should have specific guidelines on how they will be destroyed or returned to the seller.
- Who talks to whom – This section designates the liaisons for communication between the buyer and seller.
- Length of confidentiality – Most agreements are between one or two years. Do not sign an agreement that does not have an end date.
I have worked with many buyers and sellers who ask if all of this is really necessary. I believe a signed confidentiality agreement is a must. Assuming the best in someone is a great principal to live by–until that individual cannot be trusted. If you are in the middle of a deal and learn you cannot trust the other party, you will regret not having a signed confidentiality agreement. A confidentiality agreement is ALWAYS good practice.
