What data do you get when you buy a business? What data should you leave when you sell a business?
A retailer I know sold their business and scrubbed all historic data prior to settlement, leaving the incoming owner with no ability to make product purchases based on past sales, no ability to run the business to meet the expectations gained from reviewing the previous owner’s performance prior to agreeing to the purchase price.
They took legal action, questioning representations made to them prior to the purchase.
Since the data had been deleted at the source, the previous owner had now evidence to support their case.
Eventually, the dispute was resolved by the previous owner paying compensation to the purchaser. This followed a threat to report the matter to the ATO. Knowing a bit about the matter, I can understand why a settlement payment was quickly offered.
My advice is that you use only accurate data to represent the performance of the business in the lead up to the sale and that you leave the data there for the purchaser.
There is nothing to fear from truth.
This is all on my mind today because of a new matter that looks like it may make its way to the courts. Deleting data can make you look guilty. If you do think you have a good reason for deleting data prior to settlement, talk to the purchaser and get their approval in writing.
Beyond the legal ramifications, deleting historical business data erode trust, a cornerstone of any successful transaction. The incoming owner, deprived of essential historical insights, is left to navigate the business blind, potentially jeopardising its future and the value they invested. This scenario underscores the critical importance of transparency and ethical conduct in business sales; what might seem like a quick fix by deleting data can lead to costly legal battles and a damaged reputation, far outweighing any perceived benefit of withholding information.
This is about a fundamental ethical obligation to provide the buyer with the necessary tools and information to succeed, especially when the purchase price is based on historical performance.
And to be honest, I can’t think of any legitimate reason for deleting historical sales data.
This advice from me will be uncomfortable for some. It shouldn’t be though. As I have noted: There is nothing to fear from truth.