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Selling A Business: When And How To Tell Employees

When and how do I tell my Employees that I am selling my business?

There are always cases with special circumstances but the vast majority of the time it is best to wait until the sale is near closing. I want to make sure all purchase contingencies have been satisfied, financing is in place, all the money is in escrow, and the landlord has accepted my buyer and provided their signature on the lease assignment.

What are the reasons for waiting?

1. The main reason is that employees always tend to become insecure about their position with the company and the new owner. Am I still going to have a job after the business sales? Is the new owner going to replace me with someone else or a family member? Will I get along with the new owner?

All these questions come into the employees mind and more times than not, someone will quit on you and many times with no notice.

2. Another main concern is that the employees will tell your customers that you are selling your business while you are still in escrow. Customers come to your business because they like your product and or your service that you provide. They get concerned that they may not get the same level of product or service from a buyer they have not yet met. We all have competitors. Many of your customers will start using your competition. This can lead to your buyer noticing your business slowing down and the buyer can get remorseful and want to cancel.

3. Employees can spook your buyer by saying the wrong things and cost you a sale.

Both employees and customers get apprehensive about this "unknown factor". They don't know who the new owner is and always anticipate the worst.

Wait until the last few days before closing escrow to tell them.

How do I tell my employees?

After being sure your deal is solid and very close to closing (a few days away), I like to call an employee meeting.

At this meeting I want to have my buyer present. Prior to the meeting I will inform the buyer on how I want to conduct the meeting and what I want him to say. As the seller I still want to control the meeting. I want my buyer to say that they will not be making any big changes in the business. They should inform the employees that they all still have their same positions and schedules, with the same pay rates. Meeting the buyer and hearing that everything will stay the eases their fears. It also puts a face on the buyer. They see the buyer is not a monster. They then can ease your customer's fears too.

If your business has a Liquor License, you should have this employee meeting the day before you post the ABC public notice poster. Once this 30 day ABC posting goes up in your window, the cats out of the bag.  The worst thing to do is post your business and bury your head in the sand. Customers and employees will ask questions about the buyer so be proactive and handle this with a meeting. Once your employees are comfortable about the buyer, they naturally communicate a good message about the buyer to the customers. It makes the transition much smoother for everybody.

Categories: BizBen Blog Contributor, Deal And Escrow Issues, How To Sell A Business, Selling A Business

Contributor:

Lee Petsas
Areas Served: Southern California
Phone:  714-363-0440
Lee Petsas has been selling businesses with UBI Business Brokers in Southern CA since 1981. In 1999 he became the Owner and Broker for UBI. He has been approved multiple times by Courts as an Expert Witness in the area of Business Valuations.

Comments & Feedback From Pro Intermediaries & Pro Advisors On BizBen:

Posted By: Timothy Cunha JD, Business Broker: San Francisco Bay Area    

The disclosure to the employees has to be coordinated by the buyer and the seller to put the absolute best "spin" on the news. The new owner is investing in the business because he sees its potential, has confidence in the future prospects of the business, and wants it to succeed. This is all good news for the employees, who can share in that confidence and optimism about the future, based on this very tangible and substantial endorsement of the business value.


Posted By: Joe Ranieri, Business Broker: LA, Orange Counties, California    

I always encourage the buyer and seller to do their training after the close of escrow, even though sometimes the buyer is anxious to start learning to run the business and the seller is anxious to move on with their life, because of this reason with employees in particular. If the deal were to some how blow up and it has to be re-listed, then all the employees know what's going on. I do advise the seller meeting with employees and reassuring them that their jobs are safe, and have the buyer be at that meeting too. When the business is for sale, I tell the seller that it's possible at one point someone may say "hey is this the business that's for sale?' and for them to laugh and say "hey, at the right price everything is for sale."


Posted By: Peter Siegel MBA: BizBen Founder, Lead Advisor    

A couple of things should be mentioned as part of this discussion. One is that a seller should add the vendors to that list of people who should not learn about the sale until it is completed or nearly completed. Those who deliver parts, products or supplies to a company may have no loyalty to the seller and may perceive an advantage to telling the seller's competitors who may also by the vendors customers, about the proposed sale. I recently counseled someone in the BizBen ProSell program about the risk that some suppliers might stop giving her credit, and put her on COD, if they knew she was trying to get out of the business. The second point is one I sometimes recommend to BizBen ProSell clients. Not only should you introduce the buyer to the employees of the business, it often is a good idea to have the buyer meet some of the key customers. Recently, the seller of a Southern California ad agency invited each of the company's largest clients to lunch to meet the new owner. During negotiations, the buyer was hesitant to commit to the purchase for fear that he might lose important clients. What sealed the deal was the seller's written promise to set up these introductory meetings and to "sell" the new owner to seven clients who were responsible for most of the agency's income.


Posted By: Timothy Cunha JD, Business Broker: San Francisco Bay Area    

I echo the comments about keeping the transaction strictly confidential -- even from your most key employees. Not only is this important to the seller; but, it is extremely important to the buyer.

If the buyer discovers that the employees know about the sale,the buyer has every reason to wonder, even though the employees are there when the business transfers, "Have these employees started looking for another job and might they leave the company a week or two after I buy the business?"

Furthermore, if key employees know in advance--no matter how loyal they have been and what good "friends" they may have become--they now have the power and opportunity to sabotage any deal or demand special consideration and compensation to stay. When they only find out on the day of the Closing (or the day before), they really have not much alternative but to "go along to get along."


Posted By: Business Broker, Northern California

The true value of a successful business that generates positive cash flow is called in business valuation terms "an assemblage of assets." An assemblage of assets includes it's location, customer relationships, relationship with suppliers, licenses, fixtures, furniture and equipment in place that's up and running and employees are trained how to use and more. Probably one of the most important assemblage of assets are employees. Employees ultimately choose where they work. I would suggest every effort is made to avoid letting employees know a business is for sale as it may encourage them to leave because they may be concerned they don't like the new owner or may be fired. Once employees start to leave the business it damages that assemblage of assets which damages the cash flow and makes the business less attractive for the buyer.


Posted By: Business Appraisals, Valuations Advisor

The best time is when the escrow has closed and the buyer is now the new owner, but circumstances don't always allow this. Just remember, the longer employees know you are selling the business the more uncomfortable they get. Another thing to remember is that if your business is doing well don't let your customers know you have sold the business. If they find out later and there has been no change in service to them it won't make any difference.






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