#RVABizLaw Tip of the Day: Preparing Your Business for Sale by Communicating with Your Employees—Timing is Everything

Openly communicating with your employees about the sale of your business is a critically important and monumentally difficult task. When, where, and how should you have this talk with your team? Spilling this information too early could cause anxiety as employees could worry about their future and job security. They might talk and, before you know it, the word of your possible sale becomes public knowledge.  Learning of a potential sale too soon or without proper context could significantly affect employees’ work ethic and may even cause some to leave which could negatively impact negotiations with a potential buyer.

There is also danger in waiting too long —if your employees have been loyal to you and your business for some time they may feel betrayed and walk out the door. That could also could jeopardize your sale especially if employees are walking out with crucial information pertaining to your company (customer lists, pricing or strategic plan). This process requires advance thought and careful consideration.  Some of your senior staff will necessarily need to know as they likely will be needed to assist with a potential buyer’s due diligence requests and, possibly, to meet with potential buyers prior to closing.  For everyone else, it typically will make sense to meet with them and announce the imminent ownership transition right before closing (in some cases, I have seen these announcements made the day of closing).  Out of a sense of respect and loyalty to your team, most business owners choose to let employees know before the news becomes public knowledge.

The bottom line is that it helps to have a communication plan and, if implemented effectively and collaboratively (e.g., including both buyer and seller), announcing the deal to employees can go a long way toward promoting a smooth and professional transition.  Good luck and reach out to Perkins Law if we can assist with the planning, structuring, and documentation of the purchase or sale of your small business.