By Bruce Pockrandt, CBI
Managing Broker, Truforte Business Group
Your best employees can be one of the most important reasons a buyer wants your business.
They can also become one of a seller’s biggest concerns:
“What happens if my employees find out I’m selling?”
There is no universal answer for when employees should be told. The right timing depends on the business, transaction, employees and advice of the professionals involved.
But one principle is important:
Employee communication should be planned—not improvised.
Buyers want continuity.
Experienced employees know customers, systems, vendors, products and daily operations.
They may possess years of institutional knowledge.
If several important employees leave during the sale, the buyer may begin questioning whether the company can continue producing the same results after closing.
That’s why employee stability can affect buyer confidence.
Telling employees too early can create unnecessary uncertainty.
People may wonder:
Will I lose my job?
Will my compensation change?
Is the company in trouble?
Should I start looking elsewhere?
Even when none of those concerns is justified, uncertainty can cause good employees to leave.
For that reason, many business sales remain confidential from employees until the transaction is much further along.
There are situations where a controller, general manager or other key employee may be needed during due diligence or transition planning.
In those cases, the seller, broker and advisors may decide that involving a particular employee earlier makes sense.
That decision should be made carefully.
Once information is disclosed, confidentiality becomes harder to control.
Ask yourself:
Who would a buyer consider essential?
Who knows the customers?
Who manages operations?
Who handles finances?
Who has specialized technical knowledge?
Who holds important licenses?
Who could be difficult to replace?
That doesn’t mean every person needs a special agreement.
It means you should understand where employee-related risk exists.
Depending upon the company and transaction, sellers may discuss retention arrangements with their legal, tax and financial advisors.
These might include bonuses, employment agreements or other incentives designed to encourage key employees to remain through a specified transition period.
Any arrangement should be structured appropriately and documented with professional advice.
Sellers sometimes try to reassure employees by promising that nothing will change.
Be careful.
After closing, the buyer owns the company.
You may not have authority to guarantee future employment, compensation or operating decisions.
Instead, communication should be accurate, coordinated and focused on what is actually known.
When the time comes, the way employees learn about the sale matters.
A rushed announcement can create fear.
A thoughtful transition can communicate continuity.
Depending upon the circumstances, the seller and buyer may explain why the transaction occurred, introduce the new owner, discuss the transition plan and give employees an opportunity to ask appropriate questions.
When owners think about business assets, they often think of equipment, inventory and customer lists.
But an experienced team can be an enormous part of the company’s transferable value.
You cannot “own” employees, of course.
They make their own decisions about where they work.
That is precisely why creating a positive work environment, developing leadership and maintaining employee relationships before a sale is so important.
Retention doesn’t begin when you sign a purchase agreement.
It begins years earlier.
Competitive compensation.
Clear responsibilities.
Good management.
Training.
Opportunities for growth.
Respect.
A stable workplace.
Those factors help build a team that may be more likely to remain through an ownership transition.
Related reading: How to Sell a Business in Florida: A Step-by-Step Guide and the exit planning checklist.
There is no universal date. Timing depends on the business and transaction. Many sellers maintain confidentiality until the transaction is well advanced, while certain key employees may sometimes need earlier involvement.
Have a communication plan before going to market so you know how to respond if rumors arise.
Sellers should avoid making promises they do not have authority to guarantee after ownership changes.
Yes, depending on the circumstances. Sellers should discuss the legal, tax and financial implications with appropriate professional advisors.
Bruce Pockrandt, CBI, Managing Broker of Truforte Business Group, helps Florida business owners prepare their companies for sale and manage the confidentiality, buyer and transition issues that accompany a change of ownership.