That's to protect the broker, not the company. They don't want you to bypass them.

I would think it protects the company just as much. I've never sold a company but I'd imagine that people often don't want their customers and/or employees knowing that they're shopping the company around. Requiring an NDA before the company name is shared presumably makes it significantly less likely that word will spread in undesired ways...

It's quite hard to gain traction on a corporate sale and you're right that keeping the customers and the consumers in the dark is 'par for the course', but to withhold the name of the company from an interested party serves only one goal.

Think about it: I have this company for sale but I won't tell you which one it is until you sign this document.

What's is there to lose for the company to have its name spread to those that might be interested?

It's not like they're advertising the name in the NYT or making it public other than on a one-to-one basis with leads and those leads are definitely not going to publish the name if they're really interested because the last thing they need is more interest from others.

And journalists wouldn't pretend to be interested in purchasing companies just to get a scoop?

Not on this size companies. Mid sized deals involve 20 to 50 people 'in the know' and very rarely leak, even if the deals fall through. Any broker that can't tell a journalist from a serious entity won't be in business for long.

Not that it is a good practice in general IMO. I also don't like the "hush money" practice mentioned by Lane Becker either.

Good call - that makes total sense! They get confirmation of the identity of the inquiry / lead before you can contact the owner directly.

When you're dealing with such small companies, they're usually pretty early in their market and might not have built up enough defensibility to share all of their information publicly. They'd rather limit disclosures to those who have taken some action to express interest.

Public listings increase the number of copycats the end buyer will have to deal with. This isn't much of an issue for a well-established company with significant market share, but it is for a young software company fighting it out with their other (early) competitors.

3x doesn't seem bad at all. It's like an investment that generates 33.3% annually. After 3 years it's all free money.

It's counting the founder's salary as profit. In these small businesses? founders usually have to do a good bit of work. what do they say? you are buying yourself a job?

if you're making 33.3% of $50k-$500K per year... the very top end of that is close to what you'd get working for someone else, and usually you don't have to put down a half million to get those jobs.

So, while I don't think I'd sell you my company for 3x SDC, I completely don't blame you for wanting to pay less than that. It'd really only make sense if you were sure that I had things setup to the point where I didn't have to do any work (which is something I can deceive myself about... I don't see how you could get a solid answer out of someone who had an interest in deceiving you.)

"you are buying yourself a job?" Bingo. And the prospect of growing the business to a point where it can sustain a team and be less reliant on you.

If the business can run without any input from the founder a) why would they sell it? and b) if they did they would sell at a much greater multiple.

People might need to sell companies because of:

1) sudden financial hardship like hospital bills

2) a divorce court judge ordered it

3) a non-founding owner has no emotional attachment and wants to switch to another investment.

Online companies that produce passive or near-passive income are bound to become obsolete quickly. The internet moves quickly in a lot of niches. The potential lifespan of the business affects the multiple.

Your fourth option, I think, is the most important one to understand here. Just about any business, assuming you have a competent employee or two, can kick along without your input for a while. But without you, the owner, actively putting in work? it's going to do worse this year than it did last year. It's gonna fade pretty fast. And yes, if you do need to ignore it for a while, selling it to someone who won't ignore it is a good option, too.

But it's just plain wrong to think that you can look at the current numbers and assume they will go forward without more input from the owner.

I would argue that the whole idea of 'passive income' when combined with the idea of a 'small business' is a little flawed, or really, a lot flawed. Owning a small business is not like owning stock in google. You are an active participant in the business. A small business owner is fundamentally different from someone who owns shares in a large corporation.

I kind of like using marxist terminology for it. We are bourgeois[1]. We are not full members of the capitalist class; we still need to combine our labor with that capital, or else it's all gonna go to shit pretty fast.

But the real takaway you need to understand is that owning a small business is not at all like owning stock in a large business. It's a completely different thing, and your return on investment capital should be very different (and in my opinion, much higher.)

[1]no, not necessarily in the 'poor taste in lawn furniture' sense. I don't even have a lawn.

> a) why would they sell it?

If I had to come up with something... Risk that the business fails. Some would rather take $200k than hope a $66k income sustains in 2019 and beyond.

And liquidity, although it's usually not terribly difficult to borrow money if you're cashflow positive, it can be very nice to get $200k today to jumpstart an even more promising business or jumpstart a mortgage, instead of delay that for 4 years.

if a business owner insists on a much higher multiple, that usually has more to do with how much he or she enjoys that job they are selling you than it has to do with the fundamentals of the company.

While that's technically correct, with only 1 year of data behind it, it's arguably a bigger risk assuming that the first year of data will continue into the second year.

It's not free if you become an employee and need to put in time to maintain it. Think of it like a fast food franchise - you're buying a job, not a passive income stream.

I hear a lot of talks about NDA's but I have never heard of one being enforced. Anyone else seen where an NDA was successfully enforced?

Every civil court is backlogged with business misunderstandings / disagreements. People sue all the time for what may may not be legitimate reasons. All it takes is a simple majority of the jury for a victory. It's a highly subjective process whose most prized skill is the ability to sway a jury. More like coin toss, less like justice.

In business it's a bad idea to deceive business partners or to sign an agreement intending to ignore it. Your reputation will catch up with you, and don't be surprised when you get sued.