When Do You Tell Your Employees You Plan to Sell Your Business?

One of the trickiest components of selling your business is deciding when to inform your employees that your business is for sale.

The best answer is to wait until you’ve closed the sale and the money is in the bank.  If you tell your staff your exit plans, they may start looking for work elsewhere.  They also may share this information with others, including your customers and competitors.

Keeping this information confidential from your employees is very difficult to do.  You may feel obligated to inform, at the very least, your key players; these are the people who have helped grow your business.  Your eventual buyer may even insist on meeting with key employees prior to closing, which makes confidentiality difficult.

If your decision is to tell a few of your key employees that you plan to sell your business, I would recommend the following:

1. Have the employees sign a confidentiality agreement.
2. Consider a “stay bonus” for the key employees.  The amount of the bonus should be attractive enough to commit the employees for at least one year.
3. Get the stay bonus in writing with signatures from you and the employees.
4. The stay bonus can be 1/3 at closing, 1/3 six months after closing and 1/3 one year after closing.  Your buyer should be supportive of these bonuses.
5. If the buyer fires the key employees, the remainder of the stay bonus must be paid immediately following termination.
6. Allow informed employees to become engaged in the selling process. They can help with due diligence and can be beneficial in supporting the buyer’s efforts to learn more about your company.

It often takes six months to a year to sell a business.  50% of the transactions that are agreed upon never come to fruition.  This means the process takes time and there is a risk that your business will not sell.  Considering this uncertainty, it may be best to keep the sale a secret from your employees.  If you do tell your employees about the sale prior to closing, try to make it one of the last things you do; for example, the week of closing you could tell them when the odds of closing are much better.

Your employees are an important asset to the buyer when selling your business.  Make sure you handle the communication of your sale to your employees with kid gloves.  Keeping your team in place during the selling process will determine if you have a successful transaction.

This article was written by Sam Thompson. Sam is the president and owner of Transitions In Business, a Minnesota based M&A firm that specializes in selling healthcare, business to business, transportation, manufacturing, distribution and IT companies. Sam is a Merger and Acquisition Master Intermediary (M&AMI) and a Certified Business Intermediary who has successfully guided countless business owners through the sale or merger of their company. Prior to becoming an intermediary, Sam was a successful CEO and business owner for 29 years before selling his $16 million business.