top of page
  • Writer's pictureEric Williams

When to tell employees you are selling your business?



You've decided to sell your business, and now need to determine when to tell employees. Should you do so immediately? When you start actively marketing the business? When you start meeting with prospective buyers? Only after a Letter of Intent has been signed? At closing?


Many business owners feel guilty and dishonest if they put a business up for sale and don't inform employees. There's a common perception that an ethical business owner should not withhold this information from trusting employees. While every situation is different, I've seen things go well and not so well in relation to timing of informing employees of an anticipated ownership change. Following are some thoughts to consider.


When you put a business on the market you don't really know whether or not it will sell. Yet if employees know a business is for sale, they may feel anxious and uncertain about the possibility of a new owner. If such an employee has considered working for someone else or if a recruiter calls them, the anticipation and uncertainty of the ownership change may cause them to go to work for a company they feel more confident about. If this happens, the loss of employees may make your business less marketable, and may reduce your odds of selling and achieving a good price and terms. If you inform employees early on but the business doesn't sell, you may have caused unnecessary disruption to your business. So, most often from a business broker's perspective telling employees that you are putting the business on the market is not a good idea. If you'd like to prepare employees for the possibility of a sale, there's nothing wrong with casually mentioning that you want to exit the business sometime within the next 5-7 years. By giving employees a long window they won't be shocked when you do sell, but you also aren't creating the impression that change is imminent.


Some people worry that if they are actively marketing the business, employees will find out because they assume that lots of buyers will be visiting the business, particularly if the business is one in which visitors are not common. This is a very real concern, and it's why you need to be very careful about choosing a business broker or investment banker who uses a process that doesn't contribute to unnecessary business tours. When some business brokers get an inquiry from a buyer they will provide only limited information and then will strongly encourage a meeting with the seller and a visit to the business. This, unfortunately, wastes a lot of time for all involved and results in far more visitors to the business than necessary. In contrast, Codiligent business brokers has far more complete information packages that it provides to buyers and usually insists on ensuring that a buyer has a good basic understanding of the business and has asked appropriate follow-up questions before scheduling a visit. By doing more screening of such buyers it reduces the number of visitors. If employees ask about such visitors you can be honest without fully disclosing the nature of the visitor's intentions. For example, you can say the visitors are friends, investors, people analyzing the business, or people doing industry research - all of which are technically accurate.


Another point in the deal cycle when it is tempting to tell employees you are selling the business is when the buyer and seller have agreed to a Letter of Intent. While this may seem logical given that both parties have conceptually agreed to major deal terms, the transaction still has to make it through formal due diligence, and the negotiation of the final purchase agreement. There are many things that can go wrong at this stage of the transaction. Consequently, generally this also can be a problematic time to make an announcement to employees. However, for some businesses it will be impossible for a buyer to complete due diligence without some of your employees providing assistance or information. A good investment banker or business broker can help you discern whether there are ways to obtain the information necessary for the buyer to complete due diligence without making an announcement and/or if it's possible to inform only a small group of key employees.


Most of the time, I've found it's best to wait to inform employees until a final purchase agreement has been negotiated and there is a very limited amount of time between the announcement and the transaction closing, or to wait until the transaction has already closed. At that time, it will be important for the seller to not only make the announcement and positively promote the buyer, but also for the buyer to have an opportunity to immediately interact with employees and present their positive vision for the company. If there is a good cultural match between the buyer and seller, and employees don't have time to worry about the uncertainty associated with a change, there will be far fewer issues and higher retention of staff.

Comments


bottom of page