Selling your business can be a long and emotional process. You’re probably going to be working on due diligence with your buyer, intermediary, CPA, and attorney for months. Many business owners ask us about the best time to break the news to the people who work for you – after all, they’ve helped grow the business to the point that it’s an asset worth buying. Here’s what we advise.
Importance of Confidentiality
We strongly recommend that the seller keep the sale confidential until the last possible moment: the day the deal closes and the money is in your account. There are many good reasons to hold the information close; one of the most important is that deals do fall through occasionally. Sharing the news with staff and then having to tell them the deal is off puts everyone through unnecessary emotional turmoil. If you do disclose its employees, they may chat with other family members or friends – including other folks in the industry. It’ll just be a matter of time before your direct competitors and/or customers find out about it. As a Seller you need to control the message and disclose it at the right time to the people that need to know. You don’t want the information getting to people that may worry about the effect of the sale as it could negatively impact your business. Your customers may worry about the continuity of service or products that they buy from you, your vendors may worry about getting paid, your landlord may wonder whether your successor will be a good tenant for them.
Avoid Uncertainty
The uncertainty that comes with the prospect of new ownership will always impact productivity. Your workforce will spend as much time worrying about the new owner as they will doing their work – it’s a very human response. Keeping the deal confidential allows them to stay focused on their jobs until the announcement is made. A big part of your responsibility during the sale process is to make sure the company is running well and profitable so it retains its value. You don’t want anyone to take their foot off the gas pedal before the deal closes.
Employee Retention
Retention of key employees is an important consideration for any buyer. Even the most loyal workers may consider testing the job market if they are worried about how the new owner will run the business. In a few cases, the buyer may want to meet with a key employee during the due diligence process. If that’s a condition of the sale, you and the buyer will want to agree on a plan for the disclosure and perhaps a plan for retention. It’s not uncommon to offer key employees retention bonuses, both as a thank you for their contribution and as an incentive to stay on and help the new owner succeed. Most are structured as a percentage of the worker’s annual salary, paid partly at the time of sale, and completed after an agreed-upon term (say a year.) The amount should be significant to the employee (ex.50% of their annual salary) and be offered in a generous spirit, especially if the amount you make from the sale will become public. If you do go this route, be sure to have them sign a non-disclosure agreement to ensure they don’t discuss it with anyone else.
Announcement of the Sale
How you tell your employees is almost as important as when you tell them. In-person is best, of course, though you may have workers in the field who can’t attend. If that’s the case, have a detailed email with all the important information ready to send the moment you adjourn the all-hands meeting. That way, everyone will get the same unfiltered message directly from you as quickly as possible.
Work on the announcement with your buyer – you’ll want to present a congenial and united front. You’ll stand together in the front of the room; your job will be to make the announcement as briefly as possible, thanking your crew warmly for their contribution to the company’s success.
You’ll also want to introduce the new owner in a way that gives the staff confidence and then turn it over to the Buyer. They should talk briefly about their experience, the size and success of their other ventures; their reputation in the city and the industry. Employees may be concerned about potentially losing their jobs, so get that out of the way and reassure them that they have nothing to worry about (assuming that is true). Focus on what won’t change: salaries and roles (at least for now), the work in progress, and most of the systems. If a larger company is purchasing you, the staff may even see their work life improved; larger companies may offer better benefits, more training, and more growth opportunities. There is the possibility that there may be a few redundant positions that need to be eliminated. Those conversations need to be handled on a case-by-case basis with empathy and certainly offer any possible assistance to the affected employee.
Transition
You may be staying on for a few weeks or months to make sure the transition goes smoothly, so employees will have a chance to say goodbye and get used to the new ownership more gradually. Make sure they know if that’s the case.
Most sellers worry about making the big announcement, but in our experience, it’s usually much less emotional than they fear it will be. If the owner’s been talking about retirement for a while or is not very involved in the day-to-day operations, most employees will take the sale in stride. They’ll take their emotional cues from you. If you believe this is a great thing for the company, they will, too.
Uncertainty is what most of your employee’s dread, so waiting until the deal is closed and presenting the sale as a positive move will go a long way in reassuring them that the company – and they – will continue to thrive.
