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How And When To Speak With Employees About A Business Sale

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Comments & Replies: 6     Views: 1013     Posted By: Brian Loring  

A huge part of any exit strategy is properly planning for that moment in time when employees find out the business is for sale or, preferably, has been sold. Your workers have been kept in the dark for as long as possible. Some won't be a bit surprised. Others may be devastated.

Topics: Selling A Business     Tags: selling a business



A huge part of any exit strategy is properly planning for that moment in time when employees find out the business is for sale or, preferably, has been sold. Your workers have been kept in the dark for as long as possible. Some won’t be a bit surprised. Others may be devastated.

Preparation

In almost all cases, an owner should delay the news as long as possible. There is usually very little to be gained by “getting the word out.” Thousands of business owners can relay stories about the damage to their business or the emotional trauma that accompanied a premature release of the information. Don’t inform employees what’s going on until the transaction has closed. Or at minimum, the buyer has removed all contingencies and there doesn’t appear to be any major roadblocks to the finish line.

Resist the excitement and temptation to share your secret. It may even seem dishonest to keep employees in the dark about the sale. But not only could it cause disruption to the business, it could cause unwanted worry with your buyer about the potential for a smooth transition.

There will be some circumstances which dictate telling your workers ahead of time. The most common is when owners need the cooperation of employees to prepare financials, orchestrate tours, or provide information that the owner cannot. The other important consideration (which deserves an article all its own) is your "key employees." Many businesses have one or several critical workers who deserve special attention or retention strategy planning. In all cases, you should emphasize repeatedly the importance of confidentiality in the process.

When It's Time

Many owners stress about how to break the news. Managing the messaging is critical. In today’s smartphone universe, it’s a mistake thinking you can get the word out in several stages. News will travel instantly among your people. Use that to your advantage. Do it once and do it well.

Try to bring together as many employees at the same time. Teleconference the announcement if needed. Do not bring the new owner, or representatives, to the announcement, unless there is an unusual circumstance.

Challenge your employees to take complete ownership of their work and assure them their jobs are secure. Invite them to become actively involved in the transition, within limits. Keep it short but informative. Be honest and comfortable in telling them the circumstances behind your selling. Emphasize this will be a win-win-win for you, the employees and the new owner. Calmly convince them the company will go on without you.

Be ready for all types of reactions. Don’t be surprised if someone tells you, to your face, they're glad you're leaving. Try to soften the blow with your words and actions.

Keep things upbeat and honest. Don't dwell on the experience, merits or background of the new ownership. Selling that comes later. Let them know they are among the reasons the new owner is so excited about the purchase. Ask employees to keep the news within the company until you’ve had a chance to contact customers, vendors, suppliers and maybe the media.

Spell out briefly how you envision the transition to play out. Emphasize that you’re going to be actively involved through the process and can be contacted. No one likes change. But remaining forthright, calm and supportive can go a long way toward a comfortable handoff of ownership.


I often get push back from buyers and sellers who want disagree with with the advice of waiting as long as possible to announce the sale. Their concern is that if someone is going to leave because of the change, better to find out sooner than later, so the buyer can enlist the help of the seller to find a replacement, among other reasons. However I always advise them to wait until after closing for 2 reasons.

One if the deal does not go through, you just caused, uneasiness, worry and fear in the minds of your employees for no reason whatsoever. Two, your number one responsibility is the profitability of the business. You have that fiduciary responsibility to your vendors, customers and especially your other employees. Delaying the news until after the closing is the most financially responsible thing to do. In most cases, employees fear change, but they fear pending change. Once the change is made and there is nothing you can do to change it, in most cases the changes that are irreversible are embraced since there is nothing you can do about it now.


Confidentiality is essential to every aspect of a business sale. Period.

Craig and Brian are absolutely right: employees should be told as late as possible. One possible exception could be when key management retention is essential to the value of the enterprise. In such a case, the contract of sale will include the usual contingencies plus another, that the key employee(s) agree to a continuing role with the successor owner of the business. When all other contingencies have been met, and all that remains is negotiating a continuing employment, then, and only then, is when the key employee(s) should be told about the impending transfer of ownership.

My fellow brokers and I have either experienced or heard the horror story of the "loyal, long-term, 'part-of-the-family' employee being told about the potential sale of the business and then effectively holding the business and the owner hostage unless he/she is promised some bonus or compensation upon the sale.

The advice to any seller is simple: don't tell staff or management anything until absolutely essential, and then only after careful discussion with an experienced business broker.


If you are selling a restaurant with a liquor license and the posting goes up in the window then all the employees including the public will know about the sale, so it's important to have a meeting before hand because customers will ask, "....so they're selling the business?" If the seller has a meeting with staff before hand then it'll be easier to have a universal message that goes out to customers, such as, "yeah, but everything is going to stay the same, etc." Many businesses, especially restaurants, change hands of ownership every few years, and yet they go on, so it's nothing new, but there should be a positive and upbeat message from buyer/seller/employee.


How and when to speak with Employees about a business sale is a tough question. But a question that needs to be tackled sooner than later.

In the Elderly Assisted Living field, business Owners are doubly concerned about news that the business is for sale or has been sold. Not only do the Care Home Owners have to worry about the Employees, the Owners have a huge concern about their Residents and as well the Residents family members.

"Who are the new Owners, what kind of training or experience do they have, are we still going to be provided the same level of care?" is a typical response from a Resident upon learning that the facility has been sold.

In my opinion and having helped several Owners sell their care facilities, the sooner you break the news that the business is for sale or has been sold the better. Title 22 and the California Health and Safety code provide specific dates as to when notification needs to be given.

Don't be afraid of the outcome, keep doing what you do best and it will all work out. Residents, family members and Employees all know that life happens, things change and life does go on.


As Joe and Joel point out, business licenses and regulations may actually or practically mandate that employees learn of the sale sooner than would otherwise be optimal. But, I can't think of any circumstance where they need to know before there is a contract in place and due diligence has already been completed. Again an experienced broker and escrow agent are key to the business seller (and buyer) making the right judgment call.


  Helpful Resources To Assist In Selling And Buying California Businesses

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Mike Hurrell, Broker: Coin & Card Laundry Specialist Brokerage

Providencia Properties Inc in association with Golden State Laundry Systems is a full service Coin Laundry Real Estate Broker. At GSLS you will receive personalized attention from our professional staff of coin laundry experts. To sell or buy a Southern CA laundromat call Mike at 310-223-2240 X209.

Chris Seaman, Business Broker - San Diego County Area

Founded in 1994, First Choice Business Brokers has accelerated to become one of the most successful Business Sales Organizations in the world. Our team of agents have gone through extensive training to become experts in the field of business brokerage. Call Chris at 858-578-4111 for more info.

Steve Zimmerman: Restaurant Broker Specialist

Steve founded Restaurant Realty in 1996. He has personally sold/leased over 900 restaurants, bars & clubs, & completed over 3000 valuations. The author of "Restaurant Dealmaker - An Insider's Trade Secrets For Buying a Restaurant, Bar or Club" available on Amazon. Reach Steve direct at 415-945-9701.

Steve Erlinger: Laundry Broker, Consultant - Orange/Riverside Counties

I specialize in the laundry industry (Broker/Consultant at 949-500-5893) - Riverside, Orange Counties. I assist buyers navigate the many facets of finding, evaluating, and operating a laundry business. I also help current laundry owners find additional stores, sell, evaluate an existing laundromat.


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