Selling a business is a process, not an event. There are many moving parts to the process and it’s important to maintain confidentiality about the business sale and inform people on a need-to-know basis. Communication at the right time and in the proper manner is a critical component of a successful transaction. If the wrong people know too soon, they can intentionally or unintentionally take actions which would be detrimental to the successful completion of the transaction.
In larger business sales, the board of directors, executive team, and other key employees are all aware the company is being sold. However, when it comes to small businesses, it is not uncommon for the business owner to be the only person at the company that knows the sale is taking place.
There are some business owners that decide to tell their employees when they originally put the business on the market for sale. This can be beneficial because there are times when an employee may step-up and want to purchase the business. It can also be detrimental because the employees may get nervous and start seeking other employment opportunities. If a key employee leaves, or if too many employees leave, it can be disruptive to the business and the business value may suffer.
My experience with most small business transactions is that the employees are typically told about the sale within a week of the transfer of ownership. Many owners have a meeting with the employees and introduce the buyer. Then the buyer discusses the fact that he/she would like the employees’ support and cooperation during the transition and that no major changes are anticipated. This helps to alleviate any concerns by the employees that their jobs may be in jeopardy.
What about key employees? What if the buyer wants to meet them and wants assurances that they will remain with the business for an extended period of time? Here too, I would recommend waiting until a week or two prior to the transaction closing date before discussing it with them. Sometimes when employees learn the business is going to be sold, they figure the business owner will be getting a large paycheck and they (the key employees) should get a piece of the action as well. If these employees only learn of the sale a week or two before it is finalized, their primary focus will be on job security rather than lining their pockets.
When it comes to key employees, however, you may want to consider establishing some type of retention incentive program where a certain amount of money is allocated to pay bonuses to these key employees after an extended period of time. For example, if the buyer wants assurances that the key employees will stay on for three years, a retention incentive program that gives them a small bonus at the one-year and two-year marks and a substantial bonus at the three-year mark would help to ensure they remain with the company for the three-year period.
What do you need to tell your employees? Introduce employees to the buyer and express confidence in the buyer’s ability to further the growth of the company. It is also important to address employee concerns and build their confidence with respect to their futures.
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The information above is general in nature. If you have questions or would like to discuss how to plan and implement your successful business exit or how to successfully sell your business, please schedule an initial information exchange. In that complimentary session, we will be able to learn more about your business which will allow us to provide you with valuable information that is relevant to your specific situation.