A non-disclosure agreement, often called an NDA, should be signed before transmitting confidential information to a potential buyer.

In a business sale process, the right time is usually after an initial discussion with the buyer, but before sending detailed financial statements, customer lists, margins, contracts, or any other strategic information.

The NDA protects the seller, but it also allows the buyer to obtain the necessary information to seriously evaluate the business.

Summary Answer: The NDA should be signed after an initial buyer qualification, but before the transmission of confidential information. However, it does not replace verifying the buyer's seriousness or a progressive disclosure of information.

What is an NDA?

An NDA is a confidentiality agreement concluded between the seller and the potential buyer.

It specifies that the transmitted information must be used only to analyze the possibility of buying the business. The buyer cannot freely share it or use it for their own activities.

In the context of a business transfer, an NDA may cover, among other things:

• Financial statements.
• Profit margins.
• Customer and supplier lists.
• Prices and commercial terms.
• Contracts.
• Work methods.
• Internal processes.
• Employee information.
• Product and service information.

The NDA can also specify which individuals have the right to consult the information, such as the buyer's accountants, lenders, or advisors.

At what stage should the NDA be signed?

The NDA does not necessarily need to be signed at the first exchange.

At the beginning of the process, the seller can present the opportunity in a general way, without revealing the company's identity or sensitive information.

For example, they can communicate:

• The industry sector.
• The region.
• A revenue range.
• The approximate number of employees.
• The type of clientele.
• The main reasons for the sale.

This initial presentation allows to check if the buyer has a real interest.

When the buyer wishes to obtain more information, it's time to have them sign the NDA.

Typical sequence of a sales process

• General and anonymous presentation of the business.
• First discussion with the buyer.
• Verification of their seriousness and financial capacity.
• Signing of the NDA.
• Transmission of financial and operational information.
• Presentation of a letter of intent.
• Presentation and acceptance of a purchase offer.
• Due diligence.
• Purchase agreement.

The NDA should therefore be signed well before due diligence. It protects the information transmitted from the initial stages of analysis.

Why qualify the buyer before the NDA?

Signing an NDA does not mean that the seller must automatically transmit all their documents.

Before sharing information, it is prudent to check:

• The buyer's experience.
• Their reasons for buying a business and their seriousness.
• Their financial capacity.
• Their timeline.
• Their potential connection to a competitor.
• Their understanding of the sector.

In practice, it is common for several people to request information without having the capacity or real intention to conclude a transaction.

The NDA provides important protection, but it does not replace a good selection of buyers.

What are the advantages of having an NDA signed?

Protect sensitive information

An SME often has information of significant value: its clientele, margins, methods, suppliers, and projects.

The NDA helps prevent this information from being used for purposes other than transaction analysis.

Frame exchanges

The document clearly establishes what the buyer can do with the information received.

It may specify, among other things:

• Who can consult the documents.
• Why they are transmitted.
• How long they must remain confidential.
• What must be destroyed or returned if the transaction does not materialize.

Facilitate serious discussion

A buyer cannot prepare a credible offer without understanding the financial and operational situation of the business.

The NDA therefore allows the seller to share more information in a more secure framework.

Reduce misunderstandings

Without a clear agreement, the buyer and seller may have a different understanding of what is confidential.

The NDA reduces this ambiguity by establishing the rules from the outset.

What are the risks of not having an NDA signed?

Disclosure of information to a competitor

A potential buyer can sometimes be a direct or indirect competitor.

Without an NDA, they could obtain information about the company's prices, customers, margins, or projects, even if the transaction never materializes.

Solicitation of clients or employees

A buyer who obtains detailed lists could try to contact clients, suppliers, or employees.

The seller must therefore avoid transmitting this type of information too early, even when an NDA is signed.

Loss of negotiation power

Certain information can reveal the company's weaknesses, such as dependence on a client or a quick need for financing.

If transmitted too early, they can weaken the seller's position in negotiations.

Concerns among employees and partners

A business sale often needs to remain confidential for several months.

If the project becomes public too quickly, it can create uncertainty among employees, customers, suppliers, or lenders.

Does the NDA completely protect the seller?

No. An NDA reduces risks, but it does not eliminate them.

Even with a signed agreement, the seller should transmit information progressively.

They can start by providing overall financial data, then communicate more sensitive information when the buyer demonstrates serious interest.

The names of key clients, detailed prices, important contracts, or manufacturing secrets can be reserved for a more advanced stage.

The seller should also use a secure data room and keep a list of documents provided to each buyer.

To remember: an NDA does not automatically grant access to all company information. Disclosure must remain proportionate to the progress level and the seriousness of the buyer.

What should an NDA contain?

Without going into complex details, the NDA should generally specify:

• The information considered confidential.
• The permitted use of this information.
• The people authorized to consult it.
• The prohibition against sharing it without permission.
• The duration of the commitment.
• The procedure to follow if discussions end.
• The destruction or return of documents.
• The fact that no one is obliged to conclude the transaction.

When the buyer is a competitor, the NDA may require additional protections.

It is then preferable to further limit the information transmitted at the beginning of the process.

What are the most common mistakes?

Transmitting documents before signing

The first mistake is to transmit confidential documents before the NDA is signed.

Once the information is communicated, it can be difficult to control its use.

Revealing everything immediately

Another common mistake is believing that an NDA allows everything to be revealed immediately upon signing.

This is not the case. Information should always be communicated progressively, according to the progress of discussions.

Not verifying who signs the agreement

The seller must verify who signs the NDA.

The name of the individual, company, or investor group must be clearly indicated.

Using a too general template

A too general template may not be suitable for the transaction.

The content must be adapted to the type of buyer, the nature of the business, and the information that will be transmitted.

Conclusion

An NDA should be signed after an initial qualification of the buyer, but before the transmission of confidential company information.

It particularly protects financial data, customers, suppliers, employees, work methods, and strategic projects.

For an SME owner, the best approach is to combine three measures: carefully selecting buyers, having a confidentiality agreement signed, and progressively transmitting information.

The NDA is therefore not a mere formality. It constitutes an essential step to protect the value of the business during the sale process.