Informing Employees of the Sale of Your Business
When is the best time to inform employees that you are selling your business? Business brokers and merger and acquisition professionals hear this question all the time. The short answer is, “Wait until the transaction is completed,” and with good reason.
Most business owners understand that much of the value of their company is embodied in their employees. Employees make the company possible, and many owners develop a close relationship with some of their staff. Those relationships sometimes lead business owners to want to disclose the potential sale of their business to one or more of their employees. “They deserve to know” is a common refrain. Before you take that step, however, there are other things that should be considered, as they can affect the value of your business.
Reasons to Postpone Announcing the Sale of Your Business
- Confidentiality needs to be maintained.
There is an enormous risk in sharing this inside information with employees. Once it is common knowledge that your company is for sale (and it will become common knowledge once employees know), your company loses value: vendors are less like to sell to you or increase credit limits; customers are less likely to buy for fear of a lack of continuity of the relationship; and employees are less likely to stay. Once the cat is out of the bag, if you are able to get it back in at all, the damage is already done, and it can take years to redevelop the relationships that made your company valuable in the first place.
- Don’t Add Fear Into Your Workplace
While change is scary to some people, nothing is scarier than the unknown. For example, with one or more employees knowing what is in process or being considered, at a minimum the information will be shared with a spouse or close friends. Invariably, their reactions are to share stories of mass layoffs, companies being relocated, or wage and bonus reductions. It is human nature to fear the unknown and to expect (and perhaps plan) for the worst. Planning for the worst often involves looking for alternative employment, sharing the news with other employees and, perhaps, outright resignations. Also understand that when a concerned employee interviews within your industry, the first question they are asked is, “Why are you planning on leaving your current employer?” The answer will put an afterburner on the wildfire of rumors within your industry. Remember, most buyers expect to have key employees on board when they acquire a business: If one or more of them have departed or indicated that they intent to depart, the value and marketability of your business has clearly been damaged.
Announcing the Sale of Your Business
An employee meeting should be pre-planned for the afternoon of the day the transaction closes. It is vital to have 100% employee attendance. Once everyone is gathered, you explain your reasons for considering a ‘transition of ownership’ (don’t use the word ‘sale’ or ‘sold’), and that after a diligent search, you have found the perfect new owner(s). You can also talk about how there will be a transition period where you will be involved in the operation of the business, working with the new owners. The new owners should then be introduced to discuss their backgrounds, share their reasons for wanting to own the company and demonstrate their enthusiasm to do whatever is necessary to grow the business and create more opportunities for everyone. Last but not least, the new owners should honestly indicate that they plan no dramatic changes, that they value the current workforce, and that they want to meet individually with each employee (unless the number is just too large) to get their ideas and suggestions on the best way to grow the business.
In general, anyone who buys your company will want to keep your employees since they represent a significant portion of the value (and continuity) of your business. Massive job losses only occur in extremely rare cases where a new owner relocates the company a great distance, and even then it is usually only after a period of transition. Experience shows that when the transition is handled well, virtually all employees perform better under the new management for the simple reason that they want to impress and be on good terms with the new owner. The buyers typically arrive with additional capital, new ideas, perhaps a synergy with an existing business and, almost invariably, a desire to grow the business. Growth spells new opportunities for employees who want to develop their careers and, in almost all cases, they look forward to working with a new owner.
By keeping the sale of the business totally confidential until the transaction is closed, you are able to both preserve the value of your business and greatly reduce the fear of the unknown from your employees, thus making the transition of ownership a more seamless operation.