How Do You Tell Your Staff You Are Selling Your Business? The Better Question Might Be When Do You Tell Them?

Mike Ginsberg

You decide that it is time for you to sell your business. A lot of painstaking thought, countless hours of conversation with trusted advisors and loved ones, and more sleepless nights than you dare admit went into you making this life-altering decision. You finally determined the timing is right for a sale and you’re going to do it. How do you confront your staff about your intentions? Perhaps the more critical question to answer is not how but when. When do you inform your staff of your intentions?

Owners know their staff members contributed significantly to the success of their business operation. Depending upon their role and level, staff members may have the most vital direct interactions with customers, vendors, and/or other staff members. For service businesses in particular, staff members are the bloodline of the operation, fulfilling the critical needs of client engagements that enable the company to generate revenues. All other things remaining equal, the better the staff performs, the better the company performs. The better the company performs, the more the owner will be paid for the business when it is sold. The buyer knows this and will want to evaluate the staff as a part of their due-diligence to assure of business continuity post-closing. How do you make sure this occurs without jeopardizing the business in the event that a deal does not get done?

Here are 4 steps an owner can follow to minimize the risks and maximize the benefits of telling staff about a sale.

Confide in senior staff as early as possible. Determine who the critical staff members are within your business and whether they can be trusted to maintain confidentiality. For service businesses, the buyer will want to evaluate the person(s) who have the client relationships, the person who oversees operations, the head of finance of the operation and possibly the head of systems/ information technology. You will need to recruit the most influential staff members on your “sale team” especially if you intend to leave the business upon its sale. Bringing them into the sale process early demonstrates your confidence in them as processionals.

Develop a sale (or stay) bonus for senior staff. One technique an owner can use to incent senior staff to manage an effective sale process is to carve off a percentage of the sale proceeds (cash or participation in an earn-out) at a level that is meaningful to them individually and educate them on how they will receive this bonus upon sale. The key to a sale bonus is retaining key staff members and not incenting them to leave with enough cash in their pocket at closing. Make sure to structure the bonus as a retention bonus that will be paid out after a transitional period that begins after the transaction closes.

Explain the steps of the sale to avoid surprises. A sale happens in stages and educating your senior staff on the events that will occur will minimize the anxiety they will feel throughout the sale process. Like you, most senior staff members have not gone through a sale process before and those who have can become a vital resource to help others who haven’t. Assume that senior staff will have to conduct management-led meetings with buyers. The more that senior staff, and not the owner, control the management meetings, the more comfort the buyer will have if the owner is leaving the business upon sale.

What’s in it for the employees post-closing? Buyers don’t buy a business to keep it “as is.” A buyer intends to increase revenues and maximize the return on their investment. Growth equates to expansion opportunities for employees who contribute. Perhaps a manager from the selling operation might be challenged to run a larger call center for the buyer. Facets of the business might be integrated which present exciting new challenges for employees. The buyer may also possess more resources for increased compensation, better benefits and possibly stock bonuses.

There are always potential risks informing the staff prematurely but failing to inform the right people within your organization, at the right time, might prove to be the biggest risk of all.