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The MidStreet Blog

How to Tell Employees You’re Selling the Business

Erik Sullivan

Sellers Confidentiality Employees Buying a Business Buyer FAQ Seller Articles Seller FAQ

The Risks

Telling employees that you’re selling is an extremely delicate process. 
Break the news too early, and you run many risks:

  • customers and vendors may perceive you selling as a sign that your business is failing
  • competition may use this information as leverage to steal your customers
  • employees worried about their job security, may start looking for other work

Wait to tell your employees, and you’re tasked with hiding information for the rest of the sale, which could take a year or longer. During that time there will be plenty of risks to confidentiality, such as showing a buyer around your business or leaving a confidential email open on your computer.

MIDSTREET TIP

We always recommend using a personal email address and phone number when communicating with your broker.

So, what can you do? Here’s our recommendation:

Don’t Tell Them Until the Deal is Done

Hiding the sale from your employees is almost always the best option because it’s under your control.

If the employees find out you're selling, you lose control of the conversation. 

Before you know it, “I’m selling the business to spend more time with my family” turns into, “He’s selling because the business is failing” or “When she sells the business, we’ll all be replaced.”

Ironically, employees are usually one of a business’s most valuable assets for a buyer. In many cases, they need the employees more than the seller ever did. 

Waiting to tell your employees protects them from their own anxiety and allows you to control the narrative of your sale. This will keep your deal on track and your business running smoothly.

Some employees may have to know beforehand, though. 

Telling Key Employees

Depending on your organization, it may be necessary to inform some of your key employees about your plans to sell the business.

Usually, this will be your accountant or a senior-level manager who is very close to daily operations. Since buyers and lenders will be requesting updated financials on a regular basis, bringing them in early can help keep the process moving while preventing rumors.

Be sure that your broker develops a working relationship with these important employees. This ensures information can flow quickly between the seller and the buyer, keeping your deal moving towards the finish line.

NOTES

Buyers may request to meet with key employees during their due diligence period, but due to the high risk to confidentiality, we typically deny this request.

When to Tell Employees You’re Selling

In most cases, the best time to tell your employees is either right after or right before closing. Here's why:

  • This risk of a deal falling apart after due diligence ends is much smaller.
  • It allows you to tell the employees you’re selling and introduce the buyer shortly after (preferably at the same time), before they have time to worry.

How to Tell Employees You're Selling

Bring all your employees into one room on a Monday if possible. Never break the news of your sale to employees on a Friday. They'll go home, talk to their spouse and worry all weekend.

Start by telling them how much you appreciate their hard work and how important they are to the success of the business. Be warned, this is when the emotions of selling may start to come up. 

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.

MIDSTREET TIP

The most important thing to remember is that your employees are going to fear change - it's up to you and the new owner to make them feel comfortable and build up their trust. 

Next, if possible, introduce the buyer immediately. From there, the buyer should work to reaffirm what you’ve said and start connecting with their new employees. It’s best for a buyer to focus on the future of the company and the critical role the employees play in that vision. Keep it positive, make it exciting, and focus on the vision and future for the company.

Important takeaways

  • Don’t introduce the buyer late in the week – especially not on a Friday. This helps prevent your employee’s imagination from running wild over the weekend
  • Use this opportunity to tell the employees how much you care about them, and what this sale means to you personally
  • Make sure the buyer reaffirms that there will be little to no changes in the organization, and stress the importance of each employee to the buyers.

What happens if confidentiality is breached?

A breach of confidentiality has killed many deals. However, this is not always the case. 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.

For instance, 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 (using the strategies above) and that you don’t want the other employees to worry.

In a perfect world, this will stop a full-scale breach of confidentiality. Unfortunately, we do not live in a perfect world. If the news gets out that your selling, it may or may not have a negative effect on your deal or your business. It just depends.

Another Option: Tell Them Upfront

If keeping secrets from your employees just doesn’t feel right and you’ve considered the consequences described above, you could also tell your employees upfront.

We don’t recommend it, but we’ve seen business owners make it work. And in the right circumstances, it can provide some real benefits.

Most notably, it can maximize the marketing exposure for your business. One of your employees or someone they know may be interested in buying your business. Although, a good business will never struggle to attract qualified buyers.

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 business owner doesn’t have to hide anything, and your team of professionals working on the deal don’t have to worry about maintaining confidentiality.

Final Thoughts

Deciding how to tell your employees you’re selling is a personal decision. Every organization is unique, and every business owner is unique. Only you know what’s truly right for you and your company. Take our advice into account, but trust your gut.

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