Legal

Confidentiality is key: Why every entrepreneur needs a Non-Disclosure Agreement

- June 5, 2023 5 MIN READ

 

Whether your business has been operating for decades or you are excited about a fresh idea under development, you need a Non-Disclosure Agreement (NDA), explains legal expert Shalini Nandan-Singh.

In movies and on television, it seems like Non-Disclosure Agreements (NDAs) are only for famous people and top-secret projects. The reality is they are a critical document to protect your business. They don’t have to be complicated, but they are essential. Here’s why.

What is a Non-Disclosure Agreement?

A Non-Disclosure Agreement (NDA), also known as a confidentiality agreement, protects sensitive information about your business. The agreement in the NDA means that the person you are sharing your private and sensitive business information with agrees not to share that information with anyone else.

Private and sensitive information about your business is information like your client list, marketing campaigns, pricing formulas, plans and supplier contracts. It can also include other valuable information that underpins your business success that you provide to another party, usually when negotiating a service to support your business, in confidence, and not already available in the public domain.


Example:

Let’s say you’re an eCommerce store owner named Sarah. You have a unique business model that sets you apart from competitors. To maintain your competitive edge, you share confidential details about your business strategy, target market and innovative marketing techniques with a potential investor. By having the investor sign an NDA, you ensure that this sensitive information remains protected and doesn’t end up in the hands of your competitors.

Sharing ideas and maintaining trust

You will share your ideas with others.

You will need to share ideas, concepts, finances and more with those you (hopefully) trust at many stages in your business. Having an NDA with people you share this information with will give you the confidence to speak freely, share your ideas with enthusiasm, or present new concepts for your ideal customers.

You can’t get everyone in a Facebook group to sign an NDA, so think carefully before sharing sensitive information there. Not everyone is a good advisor.


An NDA with your business advisors and service providers also reminds you to speak about sensitive information only with the people you need, not simply anyone.

Example:

Sarah, the eCommerce store owner, is in the process of expanding her product line. She wants to collaborate with a trusted business advisor to brainstorm and refine her ideas. Having an NDA in place makes Sarah feel secure in sharing her innovative concepts and financial projections, knowing that her advisor is bound by the agreement not to disclose this information to others. This allows Sarah to have open and productive discussions without fearing her ideas will be stolen or leaked.

business meeting between man and woman

Building strong relationships based on trust

I have a coach, a mentor and a team (who are often great advisors, too!), and I have an NDA in place with each of them. I am sure they would all say that the agreement hasn’t negatively affected our relationship, and in practice, it builds trust and confidence.

Trust is a critical component of any solid commercial relationship; an NDA makes it easier to get there faster.

Example:

Sarah acknowledges the value of her business coach, mentor and team members in guiding her entrepreneurial journey. By implementing NDAs with each of them, Sarah fosters an atmosphere of trust and confidentiality. Her coach, mentor and team members understand that their insights and advice are shared in confidence, creating a safe space for open dialogue and collaboration. The presence of the NDA actually strengthens their relationship and instils further trust in one another.

Emphasising clarity in business relationships

Suppose you do not use or have an NDA when sharing private and sensitive information. In that case, the party that received that information is at liberty to do whatever they like, including setting up a competing service, selling your business secrets to a competitor, or making the information public.

NDAs don’t have to be a long and drawn-out, complex document – a well-drafted one will cover your business specifically and put anyone you are sharing your business information with on notice as to how you want that information treated.

Some businesses will be more complex; however, for most startups, the key thing to be addressed is: what can people disclose to others about your business? In some cases, the NDA will need to apply for both your business and vice versa, with the person you are disclosing information to. This is called a Two-Way NDA.

The clarity in these relationships for potential investors (genuine or otherwise), service providers and mentors/coaches means you can focus on what you need to address, not whether the person you are talking to will steal your new idea.

Example:

Let’s revisit Sarah, the eCommerce store owner. She is in discussions with a potential investor who has expressed interest in partnering with her to expand into new markets. Sarah understands the importance of clarity and wants to ensure that her investor is fully aware of the sensitive information she shares. By having a well-crafted NDA in place, Sarah sets clear boundaries and guidelines on what can be disclosed regarding her business plans, marketing strategies and financial projections. This clarity allows Sarah to focus on building a solid partnership with her investor, knowing that her ideas are protected.

reviewing business legals and contracts

Protecting your business information

You will use an NDA to protect information about your business, including:

  • Business ideas
  • Business plans
  • Marketing plans
  • Concepts in development
  • Financial information
  • Formulae and recipes
  • Inventions
  • Research results
  • Software programs
Example:

As an eCommerce store owner, Sarah recognises that her business information holds great value. Everything needs to be safeguarded, from her unique business ideas to her marketing strategies. By utilising an NDA, Sarah ensures the protection of her intellectual property, including her proprietary software programs, innovative concepts in development, and research results that give her a competitive edge.

Prioritising NDA preparation

Prepare an NDA and provide it for signing BEFORE you enter substantive discussions with service providers and potential investors.

Example:

Sarah understands the importance of being proactive when protecting her business information. She advises fellow entrepreneurs and startup owners to prepare an NDA and ensure it is signed before engaging in substantial discussions with service providers and potential investors. To assist with this process, Sarah has created a simple Non-Disclosure Agreement template that can be easily customised to suit individual business needs.

In the dynamic world of business, protecting sensitive information is paramount. Whether you’re an established business owner or a budding entrepreneur, a Non-Disclosure Agreement is vital for safeguarding your ideas, plans and proprietary information.

By implementing an NDA, you can confidently share your insights, collaborate with trusted individuals and build strong trust-based relationships. Clarity is key in defining what can and cannot be disclosed about your business, allowing you to focus on growth and innovation. Prioritising the preparation of an NDA before engaging in substantive discussions ensures that your valuable information remains secure.

I have developed a simple Non-Disclosure Agreement template to help small business owners and startups protect their businesses, which you can instantly download and edit here.


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