Tuesday, August 21, 2012

Selling a Private Company: Should I Tell The Staff?

Last week I took a call from an extremely agitated client. One of his staff had found out that the business was for sale. Now our client was in damage limitation mode. The employee involved worked in the warehouse. She had talked it through with her workmates who had suggested asking the warehouse manager if it was true. He was as surprised as the staff member and took it up with my client's PA, and the Operations Director. In short the cat was well and truly out of the bag.

Does the cloak of confidentiality inevitably break down in every transaction? Absolutely not, but it can happen, and this set me thinking about the best approach. Is it best to tell your employees or to keep quiet?

What are the fears that make an owner decide to keep quiet? At the least serious end of the spectrum a fear that staff will feel let down, or even sold out. Most business owners I know are tough enough to cope with this. More serious concerns might be that fear of job losses will impact quality or customer service. Could anxious sales staff tell customers causing a flight to the competition? Might key employees start to look for new jobs? Any of these things might jeopardize the sale of a company or reduce the selling price.

So lets explore what is involved in the two main options.

Option 1: Early disclosure that you are seeking a buyer

This doesn't mean you have to disclose everything about the process and give a blow-by-blow description of what's going on behind the scenes. You will need to explain why you are looking to sell, and make a commitment to provide more information as the sale process evolves. Be careful not to make promises you can't meet, they won't be believed anyway. It is always a temptation to say that jobs will be safe, but staff know you have no control of this after the sale. It is best to emphasise that a continuing high level of performance is the best way to safeguard jobs.

My own preference is to share your intentions with a select few of your most trusted employees. They will probably have to be involved in due diligence anyway, and you will put them in a position to handle things professionally if the news does get out.

Option 2: Try to keep things quiet.

There is no doubt this approach if successful minimises the risk of adverse consequences. This is a powerful argument for remaining silent until a sale is finalised. The problems come if despite your best efforts the word gets out. Like my client you might face disgruntled staff at a critical point in the sale. Your key staff will feel most betrayed, the very ones likely to be most valuable to a buyer.

If the news does get out confront it head-on. Call a meeting to give employees the information they need - and talk to the staff yourself. For sure don't send round an email.

So overall what is the best approach to take. On balance we recommend early disclosure to key employees. My own experience is that owner's fears about the impact of disclosure are overblown. I cannot think of a single occasion when a a client has lost a key employee or customer because a company was for sale. Customers are used to suppliers being sold and will give the new owners a chance to prove themselves. Employees are reluctant to walk away from jobs and risk losing redundancy payments. This is one of those many situations where the course that feels ethically most comfortable turns out to be the best for business.

Robert John Kemp is Managing Director of UK Business Broker Select Business Sales.

Select Business Sales are specialists in retirement sales of private companies. Our active approach quickly connects clients with the buyers in the best position to complete a purchase.

If you are contemplating a sale of your company contact us through our website to organise an initial discrete conversation.


Phone: +44(0)1604 432964
Email: enquiries@selectbusinesssales.com

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