Tell your employees you are selling the business?

By | May 1, 2019

The subject of when and how to tell your employees you are selling the business is one of the more complex decisions you will have when selling your business.

I will share a personal experience on a recent ownership transition and then my thoughts in general.

We listed a business with a good history and reputation along with half of the employees having over 2 years in the business. One person was considered a key employee.

The business was acquired by a competitor that put value on the business, it’s ten plus years of client records, backlog of quotes and work in progress and experienced employees.

The sellers had not told anyone they were selling but appeared to have disengaged from the business after listing it for sale.

One of the contingencies in the offer was for the buyer to have a conversation with one key employee.

Prior to getting to that step in the process, that key employee gave their notice. It was at that time the seller told the key person they were selling and offered a bonus if he would stay at least 90 days. There is little doubt in my mind that this changed the dynamics in the relationship and he wanted nothing to do with staying on to help the seller.

This could have played out very poorly but fortunately the buyer saw enough value elsewhere to create a way around this setback.

On a side note: I believe all the employees knew the business was for sale because three of the employees were family members. Immediately after the offer was accepted and prior to due diligence I could sense a tension from employees each time I was at the store. My sense is that by not telling the employees and letting them hearing it from someone else , their feelings were hurt bring emotion into the picture.

The answer to the question is different for every company because each company has its own unique culture and circumstances. The smaller the company the more complex this situation can become.

Larger companies almost always tell key personnel and often offer a 2-part bonus. One bonus for staying until the transaction is completed, the other for staying with the new owner for a fixed period of time. These are decisions based on business not personal relationships.

Small companies, or what is referred to as “Main Street” businesses, are often similar to families with business and personal lives intersecting. Sometimes family members work there and almost always key people are really key and the loss of them can hurt the business sometimes beyond repair.

The fear most small companies have is if they tell employees then in no time at all the whole world will know, including competition, customers and vendors and that can ruin me.

So let me answer the question this way. If your business couldn’t operate without someone or they would be difficult to replace and train causing the business harm, then you need to tell them.

The question is, what is the best way to tell them….remember this is business not personal.

My suggestion is to have your business broker or attorney create a non-disclosure agreement (NDA) for them to sign, tell them you have something extremely confidential to tell them and your attorney recommended you have them sign an NDA. Be careful not to have any legalese in the document. It should be as simple as possible and still create some protection. You might also offer a bonus if they make it through the closing and then tell the buyer if they provide a continuation bonus the person will stay for 90 days. You and the employee can determine the amount.

You really want to think long and hard and weigh all of the consequences before you decide the if, when and how to tell employees you are selling the business. Always remember this is the place where they earn the money they need to provide for their families.

Richard Roberts, ABI is the Senior Managing Broker at AEGIS Business Brokers, LLC and holds an Accredited Business Intermediary classification by the American Business Brokers Association and is a member of the International Business Brokers Association, International Franchise Professionals Group, Chambers of Commerce, Committees and Volunteer Organizations. Contact Richard at 479.689.4455 or richard@aegis-email.com. Subscribe to AEGIS Business Advisors by Email

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