Note: This blog was updated February 27th, 2023
“When should I tell my employees I’m selling my business?”
It’s one of the most common questions we get once we start working with sellers. This is a delicate matter for a couple reasons:
- You want to be honest with your employees, but…
- You DON’T want to tell them too early and hurt your business
So, how do you time and announce the big news?
Here’s our advice.
When should you tell your employees you're selling?
Generally speaking, there are three options for when you can tell your employees you’re selling your business:
- Tell everyone upfront, soon after you’ve decided to list your business for sale
- Tell everyone right before, or immediately after the sale is complete
- Tell key employees upfront, then tell the rest after closing
Option 1: Tell everyone upfront
In a perfect world, you would inform your employees as soon as you’ve made a firm decision to sell your business.
Unfortunately, this can come with a few risks:
- You won’t be able to answer their questions about the buyer because you haven’t picked one yet
- You won’t know when the business will be sold, and it may never sell
- You don’t know what changes will be made, if any
If you can't provide answers to employees' questions about the things listed above, they may become uneasy about their future at your company.
In some cases, they can even use their knowledge of the sale against you.
This is why we typically advise against telling them so early in the process.
For example, we once worked with a business owner who told his employees he had decided to sell very early. The employees knew the company was short staffed and used this as an opportunity to extort the owner for a higher salary to stick around.
We’ve also seen employees leave a company out of fear without ever meeting the buyer or giving them a chance.
Don’t get us wrong, we have seen business owners tell employees early and make it work.
And in the right circumstances, it can provide some benefits.
Most notably, it can allow you to market the business’s location and name with much more detail because confidentiality becomes less of a concern.
Another strength of this option is transparency. When a buyer comes in to see the business, they can meet the employees and talk openly about their interest in purchasing the company.
But before you decide to tell your employees upfront, consider waiting until after the sale.
Option 2: Wait until after the sale
In a vast majority of cases, we’ve found it's best to keep the sale confidential until immediately prior to, or even after closing.
As mentioned, when the deal is in its early stages, there are several things you won’t know yet.
By waiting until the deal is complete to talk to your employees, you can have much more productive, reassuring conversations with them about their futures with the company.
You’ll have the opportunity to immediately introduce them to the buyer and assure them the company is headed in a positive direction, which will be much more comforting to them.
Option 3: Tell Key Employees Before Others
Another option we often recommend is telling a few key employees upfront and waiting until closing to tell the rest of your staff.
Since buyers and lenders will be requesting a lot of information during due diligence, informing key employees of your decision to sell can keep the deal moving while preventing rumors.
Key employees you should consider talking to early in the selling process typically include your bookkeeper, and/or senior level management.
NOTEIf you choose to tell certain employees, we think it's wise to allow your broker to have access to them. This will help ensure information flows quickly between you and the buyer, allowing you to stay focused on the business while keeping your deal moving towards the finish line.
How to Tell Key Employees
When you tell your key employees about your decision to sell, it should happen off-site – it rarely presents well to call a few employees into your office and close the door while everyone else wonders what’s going on.
Take them to lunch or out for coffee and start by letting them know why you’ve decided to sell.
They’re going to ask questions, and the first one that will pop into their heads is "Do I still have a job?"
Make sure they understand they are one of the business’s most important assets and assure them the buyer will want them to stick around (this isn’t a bad opportunity to express your appreciation for them, either).
Let them know they’ll be getting some requests from you and your broker over the next few months, and make sure they understand the importance of confidentiality.
We also recommend that you ask them to sign a non-disclosure agreement (NDA) to formalize the need for confidentiality as much as possible.
NOTEIf a key employee decides to leave before the deal is finalized, it can jeopardize your sale. To incentivize them to stay for a period throughout and after the sale, you may want consider offering them a stay bonus.
How to Announce You’ve Sold the Company
Making your official announcement to all your employees is a big deal.
Not only are you formally parting ways with your company and your employees, but you’re setting the tone for their experience with the new owner.
Bring all your employees into one room on a Monday or Tuesday if possible.
Never break the news of your sale to employees on a Friday. They won’t have enough time to get to know the new owner, and they’ll spend the entire weekend worrying about their future.
Start the announcement by telling them how much you appreciate their hard work and how important they are to the success of the business.
Then tell them that you have decided to sell and explain your reason(s) for selling.
Next, talk about the buyer and their qualifications. Reassure them that you picked someone whom you trust to take care of them and that there will be little to no changes within the organization when they take over.
What happens if an employee finds out before you want them to?
Breaches of confidentiality have killed many deals.
But don’t immediately panic if it happens.
If rumors start to spread or an employee finds out you’re selling, you may still have a chance to save the deal.
Your best option is to try and control the spread of information.
If an employee finds out, talk with them privately to explain why you’re selling and ask them not to tell the other employees. Explain that they have nothing to worry about, and that you don’t want the other employees to worry.
As mentioned, we normally recommend either:
- Waiting until immediately prior to or after closing, OR
- Telling a few key employees once the business is listed and waiting until closing to tell everyone else
This is usually the best way to prevent rumors and keep your business running as usual throughout the selling process.
As always, it’s best to keep your business broker aware of your thought process as you navigate the sale. If you become concerned about confidentiality or you don’t like how it feels keeping the deal a secret, let them know.
They’ll be able to offer a guiding light throughout the deal and advise you on what steps are best for you and your business.
1. Will an NDA always prevent my key employees from spilling the beans?
While an NDA is an enforceable contract, it's extremely difficult to identify the source of a confidentiality breach. The NDA serves as more of an act of good faith, and communicates the seriousness of your confidentiality. Just understand it's not foolproof.
2. Can I guarantee the new owner won’t release any of my employees?
Unless an employee has signed a retention agreement, the new owner can choose to release whomever they choose once the deal is done. However, this is extremely rare. New owners will need your employees to operate the business, so unless there is some sort of misconduct or explicit reason for the employee to be let go, chances are they’ll remain on the payroll.At MidStreet, we've worked with hundreds of sellers to get the best offers for their companies. If you're starting to plan your exit from your business, or if you're just curious about the process, contact us today. We'd love to get you started on the right path.