When And How To Tell Employees The Company Is For Sale

There is no easy answer to the question: “When do I tell my employees the business is for sale?” Each situation is different and there are two schools of thought. But there are some guidelines that might aid the seller of a small California business to determine how to handle this difficult issue.

LATER IS BETTER THAN SOONER

In most cases, the best time to tell employees is when the message is: “The company has been sold,” rather than “the company is for sale.” It’s not just because of the risk that workers may get worried and quit. They may also tell customers and suppliers, and might become sloppy and inefficient in their work because “the company is going to be sold anyway, why should I make much effort when I sell my business?”


ONE WAY TO ANSWER THE DIRECT QUESTION

One business broker advises clients, in case they are confronted over the question of whether the business is for sale, to say: “Of course. If the price is high enough, most everything is for sale.”

PUBLIC NOTICE RUINS EFFORTS AT CONFIDENTIALITY

Sellers of retail stores that carry liquor, or restaurants that serve it, will be compelled to divulge their secret once there is an accepted offer and the contingencies removed. The state requires posting a notice on the premises about the proposed change in ownership whenever the transaction involves transfer of a liquor license. That includes off-sale and on-sale licenses, for liquor and for beer and wine only licenses. In that case, of course, the truth needs to be shared with employees before the notice is pasted on the front door or window.

IF EARLY DISCLOSURE IS NECESSARY OR PREFERRED

Because there are risks in “not” informing employees about the proposed sale, some sellers think it’s a better idea to announce it as soon as marketing of the company begins. The major risk of remaining quiet, is that employees will get one fact that is accurate--that the company is for sale--but will learn details that are totally false as they listen to the rumor mill churning out stories about the company going bankrupt, or the seller expecting to collect “millions” on the deal, or some other fictionalized account of what is going on. It’s not uncommon for people working in a small business, to become anxious or resentful if they are misinformed about what is really going to happen.

The intelligent strategy for sellers who choose to inform employees about the possibility of a sale, is to reveal the secret early on, and be honest about the reasons for the sale. But it is usually not wise, or necessary to answer questions about price and terms--or to disclose operating information that will be shown to buyer candidates. Should those questions come up, the appropriate response might be to suggest the employee contact the broker and go through the buyer-qualification process before learning any additional facts. That’s likely to discourage most people who are just curious. In one case, the interested employee was qualified by the broker and then bought the business.

Some sellers have found it useful to offer employees an incentive to “keep the secret” and maintain high productivity. Then, if a sale can be finalized, a cash reward goes to employees who performed as requested. Another approach is to inform and offer the incentive to only the manager or key employees. They would be cautioned, of course, not to discuss the matter with the less-advanced workers who are not included in this arrangement.