For sale: Should I tell my staff?

It is an issue that can polarise SMEs, but any business that is put up for sale will have to make a decision one way or another. By TOM McKASKILL

By Tom McKaskill

If you want to get into a heated argument, put a dozen entrepreneurs in a room and ask them if they should tell their employees that they are preparing to sell their business.

 

What you will find is that they quickly polarise into those who would tell their staff and those who would not. Each group will advance very strong arguments for their case, but few will have thought through the longer term implications of their position on the sale value of their business.

 

Those who argue for not telling employees will argue that the possibility of a sale will create stress and uncertainty among employees, resulting in a drop in productivity, a loss of key employees who decide to leave rather than face an uncertain future, and the possibility of the news reaching competitors who will use the information to undermine the business.

 

Those who argue for informing employees believe that the information will leak anyway and that it is better to inform them rather than let them imagine worst-case situations.

 

When I have spoken to entrepreneurs who have sold businesses I have been very interested to find out what they did pre-sale and what they would do differently if they had to do it again.

 

In almost every situation where the information was kept from employees, the entrepreneurs regretted the decision. Employees who had worked diligently for the business felt betrayed for being left out of a critical decision that would materially affect their future.

 

In some cases this had the result of undermining the sale process or in key employees leaving the business before the sale. Few entrepreneurs who told their employees had adverse outcomes.

 

My personal view is that the preparation process itself requires active support of key managers and employees. They are required to create the right foundation within the business so that the sale price can be optimised and they are most often needed to remain with the business so that the buyer is able to best operate the business after the sale.

 

Basically you need your best people to support the process before and after the sale. So involving them in the sale process and providing incentives for them to assist you to prepare the business for sale and for being prepared to leave the business if required, or transition with the business if needed, is an essential part of selling a business.

 

Key employees can be rewarded by being given shares, options or bonuses to assist in the preparation process. Those being made redundant can be compensated for their efforts up to the date of sale, while those who are needed by the buyer can be given a bonus after some set period after the sale for staying with the buyer to assist the transition.

 

While competition is always an issue, businesses that are always open to the right offer can simply portray that position. That is, they are willing to sell out to a buyer who can best develop the business. This allows the current owner to position a future sale positively to customers and staff.

 

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.

www.tommckaskill.com

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David Carson
David Carson
4 years ago

Is there not a legal obligation to inform staff?

More importantly is there not a legal obligation to inform clients of a change of company ownership/name?

I am extremely curious. I have recently found out that the company that I had money invested in, sold to another company entirely. This happened 9 months ago without any letter, email, warning. My money is safe but I am not happy with who the company was sold to and If I had of been informed I would of opted out and migrated.

Regards

David.