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Handling
Employees
Handling, Involving and Disclosing a Sale to your Employees
Your Business and Your relationships are Personal & Unique
As with all businesses your business and your relationship with your employees is unique.
Every business has employees that have stories, that are long timers, that are new, that have issues and maybe some employees that should have been let go earlier.
You understand your employees and the approach you take should be tailored to your particularsituation. Some general guidelines will be helpful in planning, involving and disclosing a sale to your employees.
Your Duty as an Owner:
Understand generally, that your first duty is to you and your family.
This is your business, you took the risks, you built it and you deserve to be rewarded.
This translates into information being confidential and being sensitive. If it becomes public knowledge that your business is for sale there are many potential downsides:
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Employees begin to look for other jobs
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Employees head to your competitors
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Employees are distracted at work
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Employees start flooding your office looking for reassurance
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Employees want contracts
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Employees want raises
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Employees want bonuses to stay on
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Competitors start poaching your accounts
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Competitors start recruiting your best people
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Your accounts get uncomfortable
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Your accounts want concessions
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Payments from your accounts can slow down
It is usually in your employees’ best interest to keep them in the dark until they need to know about a potential sale. As opposed to the downsides listed-Your employees keep working and stay motivated, they are not distracted, they are not looking for jobs and your competitors don’t end up with your people and your accounts.
This will require DILIGENCE on your part. You may be friends with long timers and feel you owe it to them to let them know early-fight that urge. Keep your company running at full speed with focused employees-that gives your employees their best chance to succeed under new ownership.
This will require effort on your part on how you communicate.
You cannot communicate through normal channels that may be seen by your employees.
Your IT staff can see your emails.
Your administrative staff may field your emails and your calls.
Your financial people, if they are involved, need the same diligence.
Key Financial Person
It is likely that you will need to involve your Chief Financial Officer/Controller/Accountant (“Key Financial Person”) in preparing for a potential sale. In other sections we discuss in detail what will be required, generally, for due diligence.
Your Key Financial Person will be involved with the following:
Historical Financial Statements
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Balance Sheets
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Income Statements
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Statements of Changes in Cash Flow
Tax Returns
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Explanations of Other Benefit to Owner
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Key Account Information
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Debt and Banking Information
And Most Importantly---ANSWERING BUYER’S QUESTIONS
You may be the Key Financial Employee or an outside Accountant, and that obviously makes things much easier
It may be possible that you have access to all of that information and there is no trail of you pulling the information together, but most likely you will need help from your financial key person. If you need to involve one of your financial staff try and limit it to one person-that understands the sensitivity of their role.
Your KEY Financial employee who is assisting should execute a Confidentiality Agreement that particularly addresses the Sales and Marketing of the Business. They should understand that in pulling together information it should all be done in the normal course of business, or more discreetly by gathering the information during non-business hours.
Brokers.Law recommends not keeping hard copy files, that everything be done through secure data rooms which limits and monitors access and removal of information.
When you disclose the potential sale to a Key Financial Employee, their first thoughts, naturally, will be of their own future. Make sure you have the answers to those questions. Many times, when business are sold, new owners bring in their own financial people and financial and accounting people know this. When this is a possibility you will need a retention plan either through the sale or afterward. This may take the form of a retention bonus for your Key Financial Person or a “Sale Bonus”.
Key Executives
Your business may have key executives, officers, directors, regional managers, license holders that, at some point will may need to be involved in the sale. This will usually occur during the due diligence stage. For example if you have 2 National or Regional Sales Managers handling sales teams, Buyers will want to interview and discuss accounts, projections, history, profitability and they will necessarily be involved.
The same issues arise with all employees learning of the sales process-how does this affect me? In the case of Key Executives, License Holders and others that you will need to involve this will typically be because there is a continuing role for that person or position. Disclosure again should be under the terms of a Confidentiality Agreement. Understanding and explaining to your key executives their continuing role in the company and any potential Retention Bonus or Sale Bonus, can be instrumental in keeping your key staff intact.
Disclose to Employees Only During Due Diligence After a Contract is Executed
The time for disclosing to Key Managerial and Executive Staff should only be during the due diligence process after you have reached an agreement with a Buyer, which is typically subject to their due diligence. If you have properly prepared your business for sale and your due diligence materials are organized this can greatly shorten the due diligence time table.
Employee Contracts
Brokers.Law believes that if an employee is integral to the operation of the business, usually executives, managers and sales persons, your business should have them under transferable Employee Contracts. Employee Contracts will be discussed in more detail in other sections, but your employees should be under a duty of confidentiality, have enforceable non-compete agreements and should contain non-solicitation provisions (prohibitions against recruiting other company employees to new or competing ventures).
The time to put employees under contract is not at the time of sale. In many states putting an employees under a contract at the time of sale can be considered duress and a non-compete agreement may not be enforceable. It is better to put your employees on Contracts earlier, for example at the start of a new year, or in connection with revising an employee handbook, or at the time of an annual review and raise. Coupling an employee contract that with some type of employee consideration (severance pay if not fired for cause for example) can make the contract enforceable and transferable to a new buyer.
Having Key employees under Employment/Non Compete and Non Solicitation Agreements can be significant in the sale of a business. If a Buyer is concerned that the Business they just bought can easily walk out the door to a competitor with a key employee that will affect the marketability of the Company.
General Disclosure to Employees:
If it is going to become public knowledge before your business is under contract or if the potential sale of your company leaks you may have to make it public with your employees at that time. In these cases it will be better to have one meeting, discuss your reasons, discuss the future and the impact on the employees and discuss why this will be a good thing for the Employees in the long run. Certainly, in these situations, there usually will be some employees you should discuss with ahead of time, whether based on their seniority, key position or sensitivity to the potential sale.
Under the best of conditions you are announcing the Sale as it is consummated to the employees. This is often dealt with in the Contract for Purchase and Sale. Usually this type of announcement is done by the transitioning Sellers with the Buyers.
Employees and their relationships with your staff and clientele are often the equity in the business that you are selling. Due consideration to your particular situation is time well spent.
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