Mind Your Business: The Importance of Confidentiality

By Steve Michaels

Q: Is it wise to tell my employees of the impending sale of my business?

A: The short answer is no!

If you are selling your entire business and if your employees will have a job with the new owner, then go ahead and tell them. However, if you are selling accounts only or if your employees will be let go after the sale, this is a big issue. The last thing you or the buyer wants is for an upset employee to sabotage clients with false information or unfounded doubts about the new owner. Remember, you are selling an account base, which represents a cash flow that is vulnerable to change – such as being sold.

A few months ago, a business we listed was a few days from closing. The new owner had decided to keep the present manager but had not been timely in approaching her with a transition package. The manager actually ran the business and, unbeknownst to the seller, took it upon herself to inform the entire staff of the sale.

Once the buyer learned this, the deal was in jeopardy. The buyer became uncomfortable with the transaction. If the staff knew about the sale, what was to keep them from a) prematurely quitting and looking for a new job, b) taking the client list to a new employer – possibly the competition, c) leaving the buyer without a staff or anyone who knew how to work the equipment, or d) informing the clients of the impending sale – clients who might then choose to leave because the new owner was from out of town? This situation left the seller in a precarious position.

Resolving this took much negotiation between the broker, buyer, and seller. This tragic move on the part of the manager left the seller with no leverage, forcing him to accept a sixty-day retention clause on the accounts. Plus, the buyer, in order to keep the staff in place, gave the operators a four-week bonus package to remain during the transition and the manager a four-month severance package. This was costly development for both the seller and the buyer.

Steve Michaels is a business broker with TAS Marketing and can be contacted at 800-369-6126 or tas@tasmarketing.com for questions.

[From Connection Magazine October 2011]

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