Informing Your People

The decision starts with whether to tell your employees about your plans before the sale actually happens. Obviously, they will find out eventually, but the timing can have a significant impact. Sharing this information has advantages and disadvantages, which we’ll cover here. Once you’ve decided to tell them, you must determine precisely when and how you’re going to share the news. I’ll offer you advice along these lines as well. Let’s start with deciding whether you should let the cat out of the bag.

Deciding Whether to Tell Your Employees

There are no hard-and-fast rules regarding if you should tell your employees about your plans to sell your business. If your company’s culture is positive and you trust your employees, and they trust you, you may consider telling some of them about the sale in advance. 

If your business is larger, with an in-house controller or CFO, you’ll benefit from informing them because they’ll play a pivotal role in the sale process. It would be almost impossible to keep the sale a secret from your in-house controller or CFO during your preparations, and especially during due diligence. The process of selling your business will involve numerous financial requests, and your controller or CFO will quickly become suspicious if you don’t inform them. But, you may want to disclose the sale only to them. If so, I recommend asking them to sign a non-disclosure agreement (NDA) to ensure they keep the planned sale confidential.

If you have a large number of people on staff, I recommend informing your key managers on a selective basis. Your other staff may feel betrayed that you didn’t tell them, so be prepared if the word leaks. You can simply explain that it would have been impossible for everyone to keep the sale a secret, so you had no choice but to keep it under wraps until it became official. And while you’re at it, this would be an excellent time to announce a bonus for all employees. 

If you decide to tell your employees in advance, you can use this to your advantage. You can mention to buyers that you’ve told your employees, and you can selectively let buyers meet with some of your top people. This helps the buyer feel more comfortable with your business and lowers their perception of risk. This also helps your key employees feel empowered since they’ll have the opportunity to meet with prospective buyers before one is selected.

When To Tell Your Employees

Tell your employees as early as possible or as late as possible. Why? 

If you tell your employees early, you have ample opportunities to repair any damage that may occur as a result of your conversation with them. Some employees may jump ship. If this happens, you’ll have plenty of time to replace them. 

By telling them as late as possible, the amount of damage that can occur between your conversation and the closing is minimal. In most cases, telling your employees as late as possible involves telling them the day of closing.

Deciding when to tell your employees also depends on the circumstances and the culture of your company. If you have a small team and your culture is trusting, you may consider telling them in advance. The longer the employees know, the more opportunity you have to build trust and prepare them for the process. If you decide to tell them, stress that you’ll only sell to a buyer who pledges to retain them if that is, in fact, the case. Frankly, this shouldn’t be a problem since nearly every buyer will want to retain your current staff in any event. Buyers are just as nervous about losing employees as employees are about losing their jobs. In the unlikely event that duplicate staff are laid off, you can choose to offer those staff a generous severance package and assist them in finding a new job.

Tell your employees as early as possible or as late as possible. If you tell your employees early, you have ample opportunities to repair any damage that may occur as a result of your conversation with them. By telling them as late as possible, the amount of damage that can occur between your conversation and the closing is minimal. 

How To Tell Your Employees

Once you’ve decided to tell your employees, it’s time to create a game plan to do just that. Here’s how. 

Tell the Team as a Group

I recommend first informing your management team as a group. It’s difficult for one manager on your team to keep their lips sealed, so it’s wisest to tell them all as a team. But when you do, be aware of the power of herd behavior. When confiding in your team, position the news as a positive change for them. 

This is also a perfect time to offer your team a retention bonus for their hard work. It’s crucial that pack behavior doesn’t take hold of the group and send it in the wrong direction. Your team’s support will go a long way toward a smooth transition. Remind them that you’ll only sell to a buyer who plans on retaining them – but again, you shouldn’t worry about this since nearly all buyers will desire to keep your key people in any event. But, if they don’t, you can offer your key employees an attractive severance package. 

You should also position your plans as a positive move for your employees. Let them know that a new buyer may invest heavily in the company, increase salaries, and make other improvements to the business, which spells opportunity for them. Reinforce the value of a stronger owner taking the helm of the ship. A more well-capitalized buyer can bring additional opportunities to your team, including higher compensation and more benefits. If you position the transition correctly, employees will view the change as an opportunity rather than a threat.

Your employees’ primary fears are the loss of their jobs or major changes to their roles. If you can assure them that neither will happen and that they may benefit from a change in ownership, your employees will be comforted and can assist more readily with the transition. Informing your employees will also help minimize stress on the part of the buyer. You can wrap up the meeting by presenting your team with the bonus plan. 

Ask Employees to Sign a Confidentiality Agreement

If you decide to tell your staff, you should ask your employees to sign a confidentiality agreement to ensure word of your plans doesn’t leak. This agreement can be paired with a retention bonus agreement and a non-solicitation agreement. If you do, ensure that any such agreements are assignable to the buyer. The non-solicitation agreement prevents your employees from actively recruiting other employees or customers in the event they choose to start a competing company or work for a competitor. 

Meet With the Buyer if You’ve Reached That Stage

Most employees will be terrified of losing their jobs or having to deal with major changes in the business. If you’ve already selected a buyer, it may be helpful to have the new owner at a second meeting to reinforce that they’d like to retain everyone and not make any major changes. It’s best, however, to handle the first meeting yourself so you can address any apprehension your team may have before you introduce the buyer. A savvy buyer won’t rock the boat until they’ve established a strong relationship with your team. Once this relationship has been established, they’ll also help ensure buy-in to any changes.

Prepare for the Unexpected

Be Prepared for the Question

What if one of your employees approaches you off-guard and asks, “I heard you’re selling your business. Is that true?” If this happens, you have two options:

1. Play It Off: “Yes, haha, of course. My kids are for sale, too. Buy one, get one free. Everything’s for sale for the right price. Did you bring your checkbook?” In other words, you need a pre-planned response. If you choose this route, ask a confidant to catch you off-guard and ask you several times randomly during the day as to whether your business is for sale so you can rehearse your response. This will give you the chance to practice and hone your response so you sound as believable as possible.
2. Confess: Your second option is to fess up. Again, there are no hard-and-fast rules. If you’re unsure, use the first option and play it off, and you can always confide in them later.

Have a Backup Plan in Case Things Go Wrong

I’ve been involved in transactions that hit hurdles when an employee left in the middle of due diligence because they found out about the sale and felt betrayed by the seller. This is uncommon, but you should be prepared in case this does happen. Have a contingency plan in place to mitigate potential damage and to keep your deal on course. Telling employees as early as possible gives you plenty of time to repair any damage before a deal is underway. Telling employees as late as possible minimizes the amount of time in which damage can occur.

Employees are a key asset of any business. To maximize the value of your business, you must protect the nature of your relationship with them.