Telling Your Employees When Selling a Business

If you are selling a business, there are many different roles you will need to assume as the owner.  You will need to deal with your various advisors on the deal:  business broker, accountant and solicitor and also still run your business to the best of your ability. 

Another main function you will have to think about is how to inform your staff that you are selling your business.  This article will explore some different timelines and approached on how to inform employees and also

Telling your employees too early that you are selling your business
The risk in telling your staff that you are selling too early in the process is that they might get nervous and start looking for another job.  They may also disclose to your competitors that you are looking to sell and that could raise some red flags that you’d like to avoid.

It’s also possible that the value of your business is in part impacted by the quality of employees you have been able to attract.  Should they leave too early then that could impact you business valuation.

During due diligence
If your business has some key staff members then the potential buyer may request that he or she be able to interview them as a condition of the sale.  The buyer may be interested in evaluating their skill level, how they might get along with them or if they are willing or capable of assuming a management position after the business is sold.

As a business owner, you may want to regulate how much access a potential buyer has to your key employees.  For instance, you may want to ensure that you are far along in the transaction before you are comfortable providing access to your team.  You may also request a list of question that will be asked and also request that you be present if any discussions with employees are to take place.

Will the new owner relocate the business?
Suppose you are selling a business which can be relocated (but not a home-based business) and the buyer is asking about moving the operations.  For example, suppose you own a construction business or a landscaping business (a company that is theoretically movable but still relies on skilled staff), you should try to determine the impact that this will have on employees.  Suppose the business for sale was in Oakville but you determined that the market opportunity was better in Toronto and you wanted to shift operations to there.  Even though it is not too far away, staff members may have an issue with this proposed move.  The point is, the personnel of a company as a key resource for any business.   Before you make any drastic decisions as a prospective business buyer, you will need to game out the ramifications of such a move.

Perhaps the new business owner would like to be present when staff is informed
When you sell your business, it might also be helpful to tell the staff the news with the business buyer present.  This may give the impression of a changing of the guard and the new owner may have some words of assurance to tell the staff to ensure a smooth transition for them.  Talk to the buyers and your professional advisors too, to determine if this is a good idea for all parties.

The major take-away from this article is when you sell a business, think very carefully about how you will disclose the sale to your staff.  Work with your business brokers and ask them how this has been handled in other situations he or she has seen.