When Do I Tell My Employees The Business Is Being Sold?

With the multitude of factors that come into play when deciding the appropriate time to inform your employees that your business is for sale, I do not offer a standard or general answer.  When sellers consult me as to my opinion on when it is the right time, I like to review the major issues that will affect the decision.

Seller makes the final call.

First of all, I feel it is the seller’s right and responsibility to make the final decision on when to make the announcement.  It is still the current owner’s business and until the escrow has closed and the buyer takes possession, the owner faces the greatest immediate impact.  They know the employees well, their insight as to how and when to make the announcement is paramount to putting together a successful plan.

Later rather than sooner.

Although some owners will think it better to be up front with the staff from the very beginning, this may not be the most prudent course of action.  Remember, selling a business takes time.  You may go to market and not have any serious prospective buyers for several months.  Many things can happen in this time and getting your staff worked up over an ownership change when you just start the process of selling is not necessary.  Don’t panic and jump the gun.  Instead, think the decision through and wait for the appropriate time.

Wait for a solid deal.

I always caution sellers to wait at least until we have a “solid deal” in the works.  Depending on the details of the offer, it may be time when you open escrow or it may be time when you receive a letter of commitment for financing the purchase.  Every deal will differ, but you should review the situation with your broker.  Just remember, a deal can fall out at any time (especially in the opening stages), so limit the chance of unnecessary stress on your people.

Key Employees

If your business has a key employee, one that most likely would need to stay on to assure a smooth and successful transfer of ownership, you may consider taking them into your confidence about the sale.  Furthermore, you should consider discussing some type of employment contract to take effect after the sale.  It may sound risky, but if they are truly necessary to the sale, it is better to find out now where they stand on staying after the sale, rather than having them leave or threaten to leave just before the deal closes.  Many times the employment contract may include incentives such as a bonus (usually paid by the seller).  This can bring a positive interest from the key employee on a financial level as well as psychological level.  They will feel they are now included in the process, and will want to play a part in finding and assisting a qualified new owner.

Employee’s  fears

Although the first concern of an employee may be “I am going to lose my job”, this does not typically occur.  Smart buyers are aware that immediate or sweeping changes to a healthy business are often the worst thing new owners can do.  Buyers will want the same people who helped build a successful business to stay on and continue doing a good job.  As a general rule, employee’s jobs are secure in a small business sale.

Seller feels responsible

Many sellers dread telling their employees that they have decided to sell.  They feel that they are letting the employees down, and they feel guilty having kept them in the dark about the sale.  The reality is that this is a necessary step in selling.  If you have done all the right things through the process (found a quality buyer, been up front and forward thinking about issues that could kill the deal, etc.) and the time is right, you should be ready to move forward.   Your concerns are normal, but this is a part of selling.  Be honest, direct and take the next step.

As a Broker, when it comes to deciding the appropriate time to tell the employees, I like to sit down with the owners and go over their major concerns (real and psychological).  I help them to review all the options and weigh their respective outcomes.  I also like to keep the buyer of the business involved in the discussion, they can do wonders to assist in the process and make their first step of business ownership a positive one for the employees.  In this aspect of business sales, it pays to be strategic.  Most of the time, if handled properly, things will work out well for all parties.

Posted on July 14, 2009  |   Email This Blog Post   |   Print This Blog Post