Planning your exit from a business is a process of telling secrets. For many owners, it is the most terrifying part of selling.

A rancher in South Texas once said to me, “I’m going to tell you a secret, and you have to solemnly swear not to tell anyone. When you do, you have to make them swear the same thing.”

Most business owners are very cautious about with whom they share their exit plans. The logic is intuitive. The more the information is shared, the bigger the chance is that someone will use the knowledge against you.

Competitors will tell customers, insinuating that your company will no longer be a dependable supplier. Employees might begin looking for greater security in other jobs. Vendors may seek another distribution channel. Your bank could start tightening your credit.

Yet your buyer wants to verify due diligence information. He wants to talk to key employees and customers. Lines of supply and the solidity of relationships have to be confirmed.

Some owners are unduly afraid of letting anyone know their plans. Sooner or later everyone will know, but when they should be informed is an important part of your planning. Controlling the distribution of information might have dramatic impact on the value of your business.

Those who should know about your plans can be placed in three groups.

Round One

Key employees: Whether they are slated to be the next generation of owners or not, key employees should be the earliest group informed of your plans. Of course if you are contemplating an internal sale, their willingness and ability to buy the company requires disclosure. If you are planning an external sale, their cooperation in preparing the company for a buyer’s due diligence will be critical.

Consider having the employees sign a new non-disclosure agreement. Even if you have confidentiality provisions in your employment contracts or policy manual, it serves to emphasize the sensitive nature of exit planning information.

Round Two

Going outside your trusted inner circle is a big step, but you should consider it once you have a solid buyer in place. Sharing earlier, rather than later, makes due diligence easier.

General Employees: Employees can usually be informed fairly early in the sale process. Explain that the transition of the company is a normal part of its lifecycle, and that you are taking steps to ensure that it is done with an eye to their continued  employment. That will go a long way to making them feel more secure. If you treat it like a dark secret, they will have greater concerns about the inevitable rumors.

That’s why I suggest you inform the employees before you tell vendors and competitors, from whom they are likely to hear it anyway. Bringing them “in the know” will also help forestall any hiring attempts by other businesses. Inertia is a powerful force. Usually after a few weeks with no major disruption, the employees just accept your exit planning as a fact of life.

Critical vendors. If you have an exclusive distribution or supply relationship with some larger companies you may already be fielding requests for a documented succession plan. Many suppliers appreciate the forethought of exit planning because it ensures the stability of their distribution chain.

One area of caution. Watch out for a vendor’s loose lipped salespeople, who may regard news of your pending departure as hot gossip for the rest of their customers.

Round Three

Customers: Most customers should be told as late as possible before the transaction closes. If informed of a fait accompli, they are likely to stick with the relationship long enough to gain some experience with the new owners. If informed too far in advance, customers will logically begin to look for alternative sources of supply.

Lenders: While many bankers and other lenders will say that they ought to be informed as early as possible in the process, it is often not a great idea. They may seek the opportunity to finance a transaction, and certainly would like to begin a relationship with any new owner as soon as possible, but they also have a primary responsibility to protect the assets of their institution.

That means they have to worry about the security of your personal guarantees, and whether they see any risk to their capital in your business. Discussions with your bank should include details about the future of your banking relationship.

Due diligence is only one step in the process of telling secrets. Lots of other stakeholders will need to be informed. How and when you do that should be a formal part of your planning process.

Reprinted from my column for business owners at www.awakeat2oclock.com.