Yes! As a seller, you should disclose all material information to a buyer, especially if it is a negative. In fact, you are better off disclosing those facts upfront rather than hiding them until a buyer directly asks about them. In discussing negative material information about a business we are not referring to things such as my employees drive me crazy, or sometimes I work late, we are referring to things such as if a key employee has given notice, if a vendor has substantially increased prices, etc.
Disclosing negatives saves time. If there is a potential deal-killer, all parties are better off facing it at the outset of the deal rather than at the last minute. Why spend time working with a buyer if they could walk away when you give them the negatives? If we tell them upfront they can decide if the deal is strong enough to move forward.
Disclosing negatives builds trust. If you fail to disclose a material fact regarding the business, the buyer will assume there is other information you are withholding and the deal will start to crumble.
Disclosing negatives protects the seller. When you disclose the negatives about your business, you should do so in writing. Most litigation occurs when two parties dispute their recollection of verbal representations. Part of the due diligence process is to put these material facts in writing and send them to the buyer. This should not be new information to them, but we want it on record that the negatives were disclosed.
In a recently closed transaction we were able to save the deal by disclosing the fact that a vendor had increased the cost of products in transit from China by approximately 20% and the business had already sent out a catalogue to customers before they were made aware of the increase in cost. Our solution was that the sale price was decreased to offset the cost of inventory that was now being sold at cost due to the increase. In this case, we saved the deal by approaching the seller with the bad news, proposed a solution and included the vendor price increase in the due diligence materials. This was a solution that worked for all parties and the transaction successfully closed.