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How to Tell Employees You’re Selling the Business

Erik Sullivan

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

When to tell your employees you're selling the business, and exactly how to tell your employees your selling your business, are two of the most important decisions you'll have to make. Unfortunately, these questions are often overlooked or avoided until late in the sales process.  

But doing so can have several negative consequences to you, your business, and even the buyer.

Break the news too early, and you run many risks...

  • Customers and vendors may perceive your business is failing
  • Competition may try to steal your customers
  • Employees may become worried about job security and start looking for other work

If you wait to tell your your employees, you’ll be have to withhold information for the rest of the sale period. And since a sale may take a up to year to complete, there will be plenty of risks to confidentiality along the way. 

So, how do sellers typically handle telling their employees? What are the benefits and drawbacks of different approaches?

Stick around. In this blog I'll walk you through a few different options and help you determine the best course of action for you and your business.  

 

 

MIDSTREET TIP

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

The Most Commonly Used Option

In a vast majority of cases, it's best to keep the sale confidential until immediately prior to, or even after closing.

Why? If your employees find out you're selling, you may potentially 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. It's a big part of what they're buying. Often, the buyer will need the employees more than you did. Even if the buyer has direct industry experience, they aren't familiar with all the intricate details of your business. And in many cases, certain employees have longstanding relationships with vendors, suppliers, and customers. 

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


Telling Key Employees

Although waiting is usually the best option, it may be necessary to reveal the sale to a key person or select group of employees.

This could be your accountant or a senior-level manager who is very close to daily operations. Since buyers and lenders will be requesting a lot of information during due diligence, talking to these employees early in the process can keep the process moving while preventing rumors.

If you choose to tell certain employees, it may be wise to allow your broker to have access to them. This will help ensure information flows quickly between the you and the buyer, allowing you to stay focused on the business while keeping your deal moving towards the finish line.

NOTE

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.

How to Tell Employees

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 consider telling your employees upfront.

It's risky, 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. 

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 the team of professionals working on the deal don’t have to worry about maintaining confidentiality.

Decide When to Tell Your Employees 

Deciding when and how to tell your employees you’re selling is a very personal decision. Every business 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 in the end, trust your gut.

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