3 Timelines For Informing Employees You’re Selling Your Business
A key element of transitioning your business to a buyer is determining how and when to inform your employees of the sale. Experience has proven that if at all possible, it’s best to wait until after the sale has closed to inform employees.
Certainly, all sales are unique and there are no fast and hard rules to follow, however there are three timelines to consider as you determine which employees need to know, when they should be told, and how much information to communicate.
Before Selling:
As you are preparing to take your business to market, you will need to gather key business information such as financial reporting, asset lists, customer data, sales data, and operational business metrics. Unless you, as the business owner, are able to access this information on your own, or from an outside confidential resource such as your accounting firm, you will need to request it through an employee. If your employee(s) aren’t used to providing this information, they may become suspicious as to why you need it. If you need to involve employees to gather information you don’t usually ask for, collaborate with your broker on how to proceed. There can be many reasons to request your business data and reports, such as working with a business consultant on improving your business, working with a peer group of business owners, gathering information for your insurance provider, or focusing on growth initiatives. However, you may need to have confidential conversations informing key employees of your decision to sell, in order to gain access to the information, buyers will want to see. If so, discuss timing of this with your broker and explore strategies for incenting those employees not to disclose your intentions to sell.
Seller Tip: Don’t wait until you’re ready to sell to begin requesting key financial and operational reports! If the information is of value to someone who is interested in buying your business, it’s certainly of value for you to be paying attention to now! Using key business reports and metrics to track the health of your business will help you make decisions that can increase the market value of your business. Additionally, you will eliminate the need to make unusual requests of employees that lead to them speculating about your intentions.
During Selling:
It’s not unusual that in negotiations with a buyer, they may request conversations with key employees. Buyers want to be confident that any employee integral to the operations of your business will be retained. If employees are essential to the operations of your business their retention may be a condition of the deal closing. As a result, key employees and managers may need to be informed before a sale is closed and, when their employment is crucial to the business, they may be offered incentives to remain under new ownership.
Seller Tip: Consider the concerns your key employees will have about your decision to sell and when you meet with them, allow them the opportunity to ask questions. Be prepared that their first concern will be for their own situation and don’t be offended at their reactions. Before you inform them, let them know you need to have a confidential conversation with them and specifically ask for their confidentiality. Once you’ve informed them, plan on providing them with general updates about the progress of the sale. Not doing so may lead to them creating their own stories about the sale, and result in a break of confidentiality.
After Selling:
Buyers are usually eager to maintain a status quo as the business transfers ownership, and together, you should plan on how and when to inform all employees. After the deal closes, but before a general announcement, you may wish to speak personally with longtime and key employees. In your strategy consider the optimal timing for informing employees in multiple locations, and when to inform those who work as contractors and receive 1099s, as well as non-key employees. Collaborate with your buyer on their preference of timing, location and how you introduce them to your employees. Keep in mind your employees will be genuinely interested in what you will be doing and will appreciate your sharing if/how you will remain involved in the business and what your personal plans are.
Seller Tip: Consider informing employees of the sale in the morning or early afternoon and avoid informing employees on a Friday or the end of a work week. It’s best to have at least one business day after informing employees, to address their concerns and questions. Carefully time who is told first and remember how quickly information travels! Clearly state your requests for not informing others, in order to allow you and the buyer to personally deliver the message. Most sellers will tell you that one of the key stressors to selling their business is when and how to inform employees. Work with your broker to consider the three timelines in this article and proactively discuss the strategies that will work best for your unique situation.
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