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so when you start to think about selling your business you think about the buyer the financials inventory legal documents but what about your employees chances are many have been with you for years and they've seen it all the good and the bad you've built relationships along the way you've even watched their kids grow up you've helped them through health issues maybe financial issues personal issues you've shared a lot of laughs and maybe even a few tears and now you're thinking about selling the business so just how and when do you let them know you're thinking about selling in this video we're going to cover three different options you should consider and when we're finished you'll have a much better understanding of the things that you should consider when it comes time to tell your employees or selling the business let's get started [Music] hi i'm jeff baxter with mid-street mergers and acquisitions we've helped hundreds of owners sell their businesses and we'd like to share a few of the things we've learned along the way in some ways selling your business can seem like just another business transaction you want the best price the best terms you want to minimize taxes and you're even prepared to go through the due diligence process but as you go through and get closer to actually selling you'll come to realize there are some very personal and perhaps even emotional decisions that you should be prepared for one of these is telling your employees you've decided to sell now it's important to remember every business is unique the relationships you share with your employees are unique and exactly when and how you decide to tell your employees is a decision only you can make so with that let's go through a few options first we'll discuss telling your employees right up front before you even get started or very early in the process next we'll discuss waiting until right before or immediately following closing then we'll finish up with the option we see most often used and that's telling a few key employees early in the process and then waiting until right before or after closing to let the remaining staff know so why not just let everyone know right up front well the truth is unless you have a very unusual situation it can be extremely risky for a number of reasons first there's no guarantee your business is going to sell right away and even if things do go well it's still going to take at least four or five months or more so getting to the closing table just doesn't happen quickly so let's just imagine for a second you're an employee the owner comes to you and they let you know that they're thinking of selling the business and this is before they even get started right at this point you have no idea who the new owner will be you don't know when or even if the sale will happen you're going to have questions questions like when a new owner comes in what will they be like are they going to be a jerk what's going to change what are my roles and responsibilities going to be are they going to be the same what if they come in they fire everybody bring in their own people will i even have a job now i know that sounds irrational but as irrational as that may sound the fear of the unknown can kick in and their imagination can just run wild so what if they decide that it's best to just go ahead and freshen up their resume it's not unreasonable to think you may lose an employee or two along the way then there's the rumor mill one of your employees mentions something to a distributor who happens to mention it to one of your competitors who happens to mention it to a primary customer or even a potential customer you get the point it could lead to a lot of problems a decline in revenue distributors reducing or eliminating terms the loss of a key employee it could have a devastating effect on the value of your business or even the ability to sell your business at all remember a buyer doesn't like risk they want stability steadily increasing revenues steadily increasing profits and a long-term staff that wants to stay and help grow the business if they see the loss of a major account or a couple of key employees it will have an impact on the price you're going to see now with all that said we have had business owners make it work and in the right circumstances it can provide some real benefits but i would certainly caution against this approach unless you have a very special situation where you feel like you could pull it off so if letting the entire staff know up front isn't the answer what about waiting until after closing this is a more commonly used strategy but it does also have its limitations first some owners feel like they're being dishonest and we've heard business owners say things like my employees really trust me if i don't tell them i feel like i was being deceitful and that makes a lot of sense the next thing to consider keeping a secret for several months is not easy and there will be plenty of things that you'll have to navigate along the way out of office meetings buyers wanting to tour your facility or even a confidential email popping up on your computer at just the wrong time but the biggest challenge due diligence due diligence is going to require a lot of your attention a lot of reports a lot of questions and someone has to really be focused on it if you're busy running the business and trying to handle due diligence at the same time it's going to be overwhelming and if your manager or bookkeeper doesn't know that you're selling but you keep asking for report after report after report they're probably going to assume something is going on so when do we see this option being used it's generally effective for business up to about maybe three to five million dollars in revenue businesses where maybe it's a husband and wife team or maybe a couple of partners usually one of the owners is keeping the books and can pull all of the reports necessary once your business reaches a certain size this is much harder to pull off because your staff is just much more involved so while there are challenges we've seen this option work well on many occasions so we've talked about letting everyone know right away and then we talked about waiting until after closing now let's touch on the third option tell a few key employees up front and then wait until after closing to tell the rest of the staff and this is the most commonly used approach especially if your business is over that three to five million dollar in revenue range why well first you'll have some help with due diligence buyers and their lenders and attorneys will be requesting a lot of information and if your bookkeeper or manager is able to assist it's a big benefit second even though it may seem like a risk to confidentiality having a couple of key employees on board early in the process can actually help prevent rumors it allows you to stay more focused on running the business and you'll have help pulling together information and coordinating meetings information requests will be turned around faster helping maintain the buyers trust and keeping the deal moving forward towards closing next by staying focused on running the business you will help prevent a drop in revenue along the way and you don't want to give the buyer or their lender any reason to reconsider the terms of the deal and finally if you have key employees of your staff that will remain with the company after it is sold the buyer is probably going to ask to speak with them prior to closing now you're probably thinking yeah that's a big risk and it can be but it's important to remember your employees are a big part of what the buyer is actually buying they're going to need your employees even more than you do so their worst fear is they're going to acquire your business have several employees leave the day after you take over and if that were to happen the knowledge experience relationships they'd all be walking out the door with them so i'm not saying you have to allow access but it's important to remember while you have risk in allowing the buyer to speak with your employees the buyer has risk and not being able to speak with them so just keep that in mind in fact some buyers won't even move forward without being able to speak with your employees so it's certainly cause for concern but there are a few best practices that can make it easier you may want to consider a stay bonus or an employment agreement or both a stay bonus is just like it sounds you can use it as an incentive to get the employee to stay until the business is sold or it can be used to entice the employee to stay on with the business after it has sold and usually for a year the stay bonus can be paid by either the buyer or the seller and it's a part of the negotiations and if a stay bonus is used to retain the employee after closing the buyer will most likely want an employment agreement as well the employment agreement is negotiated between your employee and the buyer and that happens prior to closing and when they negotiate that that also lasts for at least the first year after the first year if the buyer and the employee still like each other they can choose to extend the agreement things like offering a stay bonus or negotiating an employment agreement can go a long way towards making sure you and the buyer are both comfortable we have plenty of additional information in the learning center about stay bonuses employment agreements and other options so take some time to educate yourself up front it's definitely worth it so there you have it three different options on when to tell employees you're selling the business deciding when and how to tell your employees is sure to be on the top of your mind as you get closer to closing just remember it's a very personal decision that only you can make your business is unique and the relationships that you share with your employees are unique work with your business broker m advisor or investment banker and be sure to lay out a plan up front but in the end you're going to have to trust your gut only you know what's truly right for you and your business if you have any questions about what we've covered reach out and let us know or if you want more great information or content about selling your business visit the learning center on our website there are a lot of blogs and videos just like this and thanks for watching [Music]