Once you decide that it’s time to sell your business, you’ll be faced with many challenges. Perhaps of the toughest challenges you’ll face is deciding when and how to inform key employees about your decision.
Don’t worry; you’re not alone. Many owners are reluctant to tell their key employees that they are selling the business. Why? They fear that their top employees will run out the door searching for a new job if they hear that the business is for sale.
One client told me that his biggest concern about placing his business on the market was that his employees would find out. He and his wife were in their 80s and frail. The reality was that the employees were scared that he would not sell the business and it would be liquidated after his death.
Succession Planning Communication Tips
It’s critical that you inform your key employees of your intentions. They will likely sense that there is something is going on anyway; so rather than letting them fear the worse, consider a transparent communication style. After all, rumor and innuendo can make your employees leave faster than the truth. Four things you should do upfront:
- Articulate to your key employees why you are selling your business.
- Assure them that you will tell the buyer how important they are to the business.
- Properly incentivize them to stay. A popular incentive in these kinds of situations is a large retention bonus that is paid to the employee(s) after the deal is closed.
- Make sure that your key employees understand the importance of confidentiality, and that not all employees need to know that the business might be sold.
The reality is that the buyer of your business will need almost all your employees to keep the business running smoothly and to generate a profit. A few employees could lose their job if the buyer is larger and can manage some of the administration function from the home office. But once the dust settles, most employees are likely to be retained.
Once the paper work is signed and your business is sold, it is important that you rally your employees and get them excited about working for their new boss. Not only it is the right thing to do, most deals have earn-out clauses that pay a portion of the purchase price over time depending on how well the new owner does with the business. Having motivated and good employees in place will increase your chance of maximizing your earn-out on a deal.
If you’re embarking on the journey of selling your business and need some assistance in figuring out how to communicate to your employees, email Rea & Associates’ business valuation team.
By Tim McDaniel, CPA/ABV, ASA, CBA (Dublin office)
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