Deciding how to tell employees you are selling the business is one of the most common concerns for owners who are considering a sale. While most owners have a host of financial questions about selling, the human aspect — namely, how employees will take the news — comes with its own set of questions and anxiety.
How you decide to tell employees about the sale of your business will depend on your unique situation, including your relationship with your employees and the corporate culture. While every business sale is different, there are some guidelines that can help you determine how to tell your staff about a pending or completed transaction.
In this article, we’ll address the who, when, and how of telling employees you are selling the business. We’ll also share some real-world insights about how business owners get through this critical point in a sale.
Should Some Employees Know Before Others That You’re Selling the Business?
Most small businesses have employees categorized into some sort of hierarchical structure that looks something like this:
- Upper management
- Supervisory management
- Frontline employees
- Part-time employees
- Contract labor
As you consider selling your business, it’s helpful to think simultaneously about who needs to know about the sale and when they need to be informed. The general consensus is that you shouldn’t tell employees that you’ve sold the business until the deal has closed. This is good advice, but there can be all kinds of exceptions to this rule.
There are several schools of thought on whether or not you should loop in certain employees about your decision to sell earlier in the process. While staying tight-lipped is usually the best choice, there is often a key employee whom you’ll want to include sooner rather than later.
2 Common Scenarios to Consider
You may have one employee, perhaps a bookkeeper or financial manager, whose responsibilities include managing the financial reporting or the accounts payable and accounts receivable for the company. It may be difficult to gather all of the financial data required to sell your business without this person becoming aware. In fact, it’s highly likely that you will need this person to help you get a pre-sale business valuation completed, as well as to facilitate buyer due diligence requests.
Another scenario may involve a senior manager in charge of operations. It can be difficult to bring strangers (i.e., serious buyers) onto the premises without a key employee knowing who they are and the purpose of their visit. It may be that this manager would like to stay on — and perhaps get promoted to a more senior position — under the new ownership. This employee may even play a role in presenting the business operations to prospective buyers.
Many entrepreneurs want to keep the mere thought of selling to themselves. But fast-forward to when you’ll be getting into the actual business of selling the business. It may be difficult — if not impossible — to keep selling a secret from every single employee at your company.
A Note About Family Members
What, when, and how to tell family members is its own dilemma. Family or not, it’s best to severely limit the number of people who know about a potential sale before it’s complete (or at least well down the road to completion).
If there are family members who are also employed by the business, it’s important to understand that, whether they tell you or not, they may be strongly opposed to you selling the family business. For example, they may not welcome the idea of reporting to a boss who is no longer a relative. They may also fear for their job security — and status — when the business is no longer family-owned.
Don’t assume that family members will be supportive of your plans to sell just because you’re related. If you do confide in them, make it clear that any communication about selling should come from you or be approved by you. Loose lips can indeed sink ships.
When Should You Tell Your Employees You’re Selling the Company?
As mentioned above, the who and the when of telling employees are closely linked. It may be beneficial to bring one or two key employees into your confidence earlier in the process, while informing the rest of the team after a Definitive Agreement has been signed with a suitable buyer.
Assuming you’d prefer to announce the sale to employees after it’s complete, there are three hurdles you’ll need to get through that may require the assistance of a key employee:
1. Pre-sale preparation
The most successful sales happen when owners prepare the business for sale before going to market. This usually entails understanding the value of your business, making sure the business is ready for buyer due diligence, and creating the marketing materials needed to market the business to potential buyers.
Gathering all of the information above — typically in coordination with your business broker — may require assistance from a key employee.
2. On-site visits and management presentations
At some point after going to market you should have a small number of carefully vetted potential buyers who want to move forward. It is customary for the seller to give them the opportunity to see the business operations before submitting an offer.
As mentioned above, there may be a senior operations manager who would be critical in both coordinating a discreet showing of the business (usually after hours) and helping you explain how things work.
3. Due diligence
Due diligence can be one of the most stressful phases of the sale process. It is a document-intensive exercise during which the buyer can request to see almost anything associated with your business. You will be expected to respond to these requests in a timely manner, as delays can send the wrong signal.
The rigors of due diligence often require both internal and external help. This is why the most common scenario we see is a trusted office manager assisting the seller at this stage in the process.
A Word of Caution
If there’s a worst case scenario, it would be telling employees about the sale of the business before it is finalized, only to have the deal unravel. This can cause all kinds of confusion and speculation at every level of the company.
Employees will have many questions they are afraid to ask: Why didn’t the deal close? Is there something wrong with the business? Now what? Do we go back to normal, or will the business close if it doesn’t sell? Should I look for another job?
Err on the side of caution to avoid this outcome at all costs.
How Should You Talk to Employees About Selling the Business?
There are a number of ways to deliver the news that you’re selling (or have sold) the business. As we’ve already discussed, who you are telling and when will influence what you say.
In a scenario where you’ve sold the business and are telling employees after the transaction is complete, you may or may not decide to include the buyer in your announcement. Some owners prefer to deliver the news alone, while others introduce the new owner as part of the sale announcement. Ultimately it’s up to you and the buyer how you want to publicly communicate the news.
The trickier question is what to tell employees at earlier stages in the process.
What to Say During the Pre-Sale Preparation Phase
During the pre-sale preparation phase you may need internal help gathering financial information like Profit & Loss statements, Balance Sheets, Cash Flow statements and tax returns. More often than not, the first step in selling the business is getting it valued.
If you’re not ready to say that you’re having the business valued in anticipation of selling it, there are many other reasons why business owners get a valuation. Here are just a few:
- Your insurance broker has recommended that you have the business valued by a professional.
- Your financial planner recommends a valuation as part of your overall retirement planning.
- Your lenders have requested that they have a formal business valuation on file.
- You simply want a reliable estimate of what your most valuable asset is worth.
It may feel like lying, but the earlier you are in the process the less you’ll want to say about your plans to sell.
What to Say During On-Site Buyer Visits
While it may sometimes be feasible for serious buyers to visit the business after hours, that is not always the case. Even if you do schedule buyer visits after hours, we’ve seen instances where employees unexpectedly decide to work late or have responsibilities that include checking security cameras.
It’s relatively easy to come up with a reason why strangers are traipsing through your business. Over the years we’ve seen owners say that these buyer-visitors are bankers, insurance agents, commercial appraisers, potential new customers or suppliers.
Again, if this feels too much like lying, you can always say the visitors are potential investors — which is entirely true.
You’ll need to be the judge on how forthcoming you are with employees and when you find it necessary to say something before a deal is done. After the deal has closed, the message — that you’ve sold the business — is fairly straightforward.
How to Tell Your Staff That You’ve Sold the Business
There aren’t many owners who look forward to the day they have to stand in front of their entire team and announce that the business has been sold.
Knowing this, there are still many words of reassurance that you can give your team members about the big change. The reality of deal structure is that the owner is typically tied to the business for some period of time — typically months or even years — after the sale. If this is true for your situation:
- Let employees know that you will be around to ensure a smooth transition period.
- If you’ve signed a consulting agreement with the buyer, let employees know that — like them — you will also be working for the new owners.
- If it’s going to be two or three years before you receive the full amount of the purchase price (due to an earnout or a seller hold back), tell employees that you will continue to have a financial stake in the business going forward.
The sale of a business is not like the sale of real estate: You don’t hand over the keys and ride off into the sunset. Let employees know that you’re not going anywhere soon, and that little should change in the coming months.
[Note: Having the buyer talk about themselves, their reason for buying the business, and their plans for the future can also be reassuring to employees.]
There’s No One-Size-Fits-All Approach
There is no one right way to tell employees you are selling (or have sold) the business. It will depend on you, your people, the corporate culture you’ve built, the circumstances of the sale, and a host of other factors that we’ve touched on here.
Rest assured that every owner worries about this part of the process, and every owner arrives at a solution they can live with. To relieve your concerns, enlist the help of a business broker early on — like when you first start thinking about a sale. Seasoned business brokers have seen all kinds of scenarios when it comes to how owners tell employees about a sale. We’re happy to share our experience, brainstorm ideas with you, and ease some of your concerns.
If you’re thinking about selling your business, reach out to the advisors at Allan Taylor & Co. today. We’ve helped hundreds of owners through the entire mergers & acquisitions process, and we are ready to help you!