How can you nail that inevitable meeting with your employees when the time comes?

The issue of what you tell your employees when you’re trying to sell your business is a tricky one that requires careful thought. Maintaining confidentiality surrounding the sale typically takes precedence over other concerns, yet it may be impractical — or even impossible — to keep employees in the dark.

The most common approach is to keep information about the sale limited to as few people as possible. “The general public typically knows nothing about the small-business-for-sale marketplace because it happens below the radar,” said Rose Stabler, managing partner of Certified Business Brokers in Houston. The primary reason for strict confidentiality is to prevent customers, vendors and employees from assuming that there is something wrong with the business and putting a successful sale at risk.

“As with the public, it is natural for employees to think negatively if they learn that the business is for sale,” Ms. Stabler said. “They may look for employment elsewhere — possibly with competitors — and then there goes confidentiality. The general rule we use is that there is nothing to gain by telling employees that the business is for sale before it is sold. National statistics say that only 30 percent of all businesses on the market actually get sold. Therefore, coming clean with employees could be all for naught.”

The potential downside in not telling employees is the shock they may get when they arrive at work one day and learn the news. Last June, when Randy Hughes purchased Industrial Maintenance Assistance, a metal fabrication and millwright business, the company’s 17 employees remained unaware of the sale until a meeting the afternoon of the closing. At that meeting, the seller announced that the company had been sold and Mr. Hughes was introduced as the new owner.

“Everyone looked kind of frozen,” Mr. Hughes recalled. “Their primary questions were about me, my background and what changes I planned to make as the new owner. I reassured everybody that my philosophy was, if it ain’t broke, don’t fix it."

In fact, the sale of a business can be a good thing for all involved. A new owner may bring increased financial strength and greater dedication to building the business. Many buyers are more concerned with keeping employees than with eliminating them.

“Individuals who are familiar with the business-transfer process know that a new owner usually wants to keep the employees,” Ms. Stabler said. “The employees are one of the valuable assets that a new owner is counting on to keep the business running without a hitch. The employees, on the other hand, are in new territory — never having had experience with a business being sold out from under their feet. The employees’ perception can be one of uncertainty, or perhaps even betrayal.”

An alternative approach is to inform employees about a pending sale to allay their fears up front and avoid that sense of betrayal. Many sellers have a fierce sense of obligation to employees, especially to those who helped build the business.

I encountered one such seller who prepared a two-page letter for employees, thanking them for their dedication to the company and explaining that he no longer had the skills required to manage the business at its current size. He went on to explain that the continued growth and success of the business were dependent on a new owner stepping in, and that person would more than likely need to be in hiring — not firing — mode.

This second approach may be a way to avoid employee disappointment at not being trusted with information and to prevent the rumor mill from starting and becoming destructive to the business. It also recognizes that it can be impossible to keep the decision to sell from at least a few employees, particularly a bookkeeper or manager who may need to pull together financial information or other key documentation requested by a buyer.

Sooner or later, you will have to tell employees about the sale of your business. Whether it’s before or after the sale may come down to a combination of factors, including the type of business you own, the type of buyer you expect to find and your relationship with employees.

Here's the link to the full article in NY Times.
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