The decision to sell a business requires deliberate thought, careful reflection and complete agreement of the owners.
But now, you have decided to sell your business. Congratulations! One of the first questions raised is “When do you let your employees in on the secret?”
Like most things in life, it depends! While there are a number of factors to consider, the simple answer is to keep it as close to the vest as possible for as long as you can get away with it! Factors impacting the “when” are the transaction timeline, the nature and size of business, the type of buyer, the role of the employees and the owners’ relationship with them.
Leadoff Batter: The Timeline
It is important to understand the transaction timeline in order to manage it effectively. The steps to a successful sale are not rapid fire or made up of linear boxes that can be checked off in a matter of days, but rather involve a complex sequence of events that must be carefully orchestrated to ensure success. It is an ebb and flow process.
Once the sell decision is made, it may take some time to prepare the company for sale. Next, the business is put on the market and bids solicited, discreetly of course, until bona fide buyers are identified and qualified. At some point, the seller will receive a letter of intent. While non-binding, it requires the seller to take the business off the market and gives the potential buyer a period of exclusivity to perform due diligence (typically 60 to 90 days).
This might be the time when a small circle of employees must be informed. A good rule of thumb to follow at this juncture is to tell employees on a “need to know” basis.
Who’s On First
Significant documentation is requested and produced during the due diligence period, including detailed financial statements, projections, etc. Since the CFO is most likely the one on whom the responsibility for assembling the data will fall, he/she should be one of the first to be “in the know.” If the CFO is kept in the dark, you run the risk of him/her feeling excluded from the inner circle which could have negative ramifications. Besides the natural feelings of uncertainty surrounding his/her future with the company, there is the potential that he/she will feed the rumor mill, revealing what he/she believes is going on, to a wider group which could result in a number of actions that potentially jeopardize the sale.
Remember, perception is reality.
The A Team
In a business where there is dependency on key personnel, such as the celebrity chef at a restaurant, or a high performing sales representative with an extremely loyal customer base, it makes sense to fill in the key players on the game plan early in the process. Since these employees directly impact the value of the business, they will most likely have to declare their intentions to stay with the company if the sale is to come to fruition. Additionally, the core players will need to be involved in the discussions, creation and signing of non-competition agreements, which will give the buyer the assurance that the core team will remain with the company after the sale.
Leaving Base Early
While informing the right people at the right time is a necessity, it’s wise not to forget the old wartime adage: “Loose lips sink ships.”
If word gets out that the business is on the market before the time is ripe, relationships with suppliers and customers may be adversely affected. They may hesitate to conduct business with an entity that they perceive may be gone tomorrow. Similarly, if employees are fearful and uncertain, their productivity, service and morale may suffer, causing a catastrophically timed decline in the business. Lastly, it could be ammo for the competition to steal market share!
Bottom of the Ninth
By making the announcement when the deal is either imminent or complete, owners can offer concrete, reassuring information to the employees. They can provide specifics on the transaction, the new owners, potentially exciting opportunities, and can clearly and carefully outline any expected changes. Delivering the news in a thoughtful, professional, factual manner significantly reduces the stress on the employees and can make the entire process run far more smoothly.
Post Game Analysis
Owners should embrace the tenet: “Business is great, let’s keep it that way!” and continue to operate on a “business as usual” basis.
In most cases, the surest method of maintaining a robust business and optimizing the likelihood of a successful sale is to maintain maximum confidentiality. Keeping operations running as smoothly, efficiently, and profitably as possible protects both the integrity of the deal and the emotional well-being of the workforce. If the deal does not go through, which can happen for any number of reasons, it is far better for the employees to have remained unaware of the possible transaction.
On deck: “How to tell your employees that you are selling the business”