Selling your business is a deeply conflicting and personal decision, and the ramifications affect not only yourself, but your staff as well.
Whether you have 3 or 300 staff working for your business, the decision to tell them you’re planning to sell is something many business owners will struggle with.
It begs the question: Should you tell your staff you are thinking of selling your business? If so, when?
Trying to find the words to tell your employees you are selling, and knowing the best time to do so is a challenge. One that there is no perfect answer to. It is a deeply personal decision for each business owner and only you can decide on how and when you will break the news.
Being honest and transparent about decisions which will affect your team may seem like the ethical thing to do. Especially if you have developed close working relationships.
But doing so also presents a large number of risks:
- Employees no longer feel like they have job security. They immediately start looking for another job.
- Competitors may find out, and try to use this information against you.
- Loyal customers may end up leaving you for competitors
If any of these outcomes were to occur, your potential buyer could use this information to their advantage in the transaction process. Depending on the severity of the loss, a worst-case scenario may result in an offer being withdrawn and the deal falling through altogether.
Two Groups of Employees
An option you may want to consider is to separate your employees into two different groups.
Group 1 includes your senior staff and key employees - those who lead by example and are respected amongst the team. This is the selection of employees where you will be transparent about the opportunity to sell and invite their questions.
As it’s likely that the acquirer will first wish to speak with the management team, these select employees will be influential in order to successfully finalise the deal. It’s important to inform them about the potential sale and keep them updated with the progress. This provides benefit to this group of employees as well. An acquisition often leads to advancement opportunities for key staff, giving them a chance to progress in their careers. Keep this in mind and discuss the importance of confidentiality. If the means are available, you might consider offering them a financial incentive to help you close the deal.
The second group of employees is made up of entry-level and lower level employees. This group should only be told once the transaction is complete and the dust has settled.
While this may cause some resentment and dislike among your employees, at least you will be able to communicate to them a proper roll-over strategy with the new owners. Whether they retain their jobs or not, this is the safest way to proceed with the least amount of risk to the business model and your final payment amount.
Although some employees may feel betrayed, it is sometimes an unfortunate injustice in order to successfully close a deal - usually which has an outcome favourable to both the seller and the current staff.
Closing The Deal: Not As Easy As It Seems
Before you proceed to dividing up your employees and preparing any documents, just remember that almost half of all acquisition offers never result in a business sale.
There are a large variety of reasons. It could fall through due to financing, or a sudden illness. Other times, after doing due diligence the buyer no longer believes your business to be a viable option. So when you receive an acquisition offer, don't jump to tell your employees, until it progresses to a certain point, there is no reason to instil unnecessary stress and fear.
Besides the impact on staff well being, releasing the news too early can damage the company’s brand and reputation, especially if competitors or customers find out.
Tips for Managing Communication
While this secret may feel like a burden, there are ways to alleviate the guilt. Come up with a creative and cohesive communication plan in case an employee begins to question what’s happening behind boardroom doors.
It’s never a good idea to lie so, it’s best to provide them with an explanation.
Here are a few suggestions which may help:
It is of paramount importance that you can carry on as usual during this time as it avoids suspicion and feelings of uncertainty within the organisation that may quickly spiral out of your control.
Keeping The Sale a Secret: A Practical Solution
An offer they couldn't refuse
A business owner we know recently faced this situation. A husband and wife team started a small manufacturing business over 18 years ago. The owners self-funded their business and were also able to keep 100% equity in their company. They did all this while growing their business to over 60 employees.
Then the company received an attractive offer from a larger company who was purchasing multiple small businesses in the same space.
The offer was significant enough that it meant both husband and wife would be able to retire in their forties. For the pair, the opportunity seemed too good to turn down.
But, there was one problem: How would they tell their employees? All of whom they considered family? It's not easy to tell people you are selling your business of 18 years.
The business owners decided it was in everyone’s best interest to tell their employees on a ‘need to know’ basis. They told the senior managers who were part of the negotiation. These managers were sworn to secrecy for the betterment of the outcome.
The rest of the staff had no idea throughout the negotiations and were only told after the deal was finalised.
The wife spent the entire sales process fighting internal conflict. She was usually very open and transparent with her employees. Yet she was now keeping a large secret from them which could potentially affect their livelihoods.
After everything was signed she was finally able to disclose the deal and tell her staff that she had sold the business. Her emotions got the better of her and she broke down in tears.
Although she felt the burden was lifted when she able to communicate openly, she knew it was keeping it a secret that helped them to close the deal.
At the time the staff were in absolute shock, but fast-forward a few years:
From time to time the husband and wife see their former employees around town. There are no longer any hard feelings or animosity between staff and ex-owners.. They were even invited to join a private Facebook group for former employees.
The employees came to realise that by keeping the sale quiet, it let the owners close the deal on their terms, which meant more job security for current staff at the time.
While telling your staff you are thinking of selling your business may seem like the right thing to do, sometimes it could jeopardise the transaction and lend to an unfavourable outcome for all involved.
Keeping the deal quiet may turn out to be the best thing you can do as a seller - for yourself, for your business, and for your employees.
At Exit Advisory Group, we help entrepreneurs develop growth and exit strategies to maximise their wealth and provide options.
We do this by giving business owners the tools and strategies to design more profitable, efficient and enjoyable businesses to own - that are also less dependent on them. When they choose to exit, they are in the best position to unlock the wealth in their business and be rewarded for their hard work.
If you liked this article we'd love you to share it!