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Why Shouldn't I Talk With Employees Prior To a successful sale of my business?

 

Maintaining confidentiality is usually critical to a successful business transaction.  It is in the best interest of both the seller and the buyer to maintain strict confidentiality throughout the entire transaction process through closing.  It is amazing how rapidly a business can lose employees, customers, and vendors if word leaks out that the business is for sale prior to closing.

While it is clearly in both the seller’s and successful buyer’s best interest to avoid any and all contact with these people and entities, if the buyer would have discussions with any of the above parties, and if the deal subsequently falls through, the seller would be left with potential irreparable harm and the possibility of not having a business left to sell to someone else. Therefore, we strongly advise sellers to not allow any contact between prospective buyers and their employees, customers, or vendors until after closing. 

In the event you would request contact with the above people during due diligence or anytime prior to closing, that request has a strong chance of being denied.  If you feel you need this contact to determine your willingness to proceed with a deal, please discuss this with your Transworld Advisor prior to signing a purchase offer to determine if there are other means of accomplishing your goals.

Conversely, we also strongly advise both parties to freely discuss the employee, customer, and vendor relationships with each other and to develop joint notification and retention plans to start immediately after closing to increase retention rates of all parties and to increase the chances of success for the buyer.  Usually, people (think employees, customers, and vendors) react much more negatively to the uncertainty of “might sell” than to the certainty of “sold.”  Implementing a strong retention plan on the day of closing, and letting people know with certainty that the sale only occurred because of their strong performance and relationships will increase the chance of the business transfer success.  While no one can guarantee employee and customer retention to the Buyer, the best chance of retaining people is to follow the time tested approaches of thousands of business transactions by waiting until closing to disclose it.

Similarly, most buyers are eager to start training and would like to begin prior to closing.  Again, this is not recommended.  There is a fundamental difference of getting trained as the owner and captain of the ship after closing vs. getting trained as the prospective owner prior to closing.  The former is almost always successful; the latter is laced with pitfalls that decrease the chance of success.  All too often personality differences and minor conflicts between the buyer and seller or buyer and employees prior to closing can disrupt the sale itself or cause future employee trust issues.  It is simply best to patiently wait for the closing to start the training process.

Josh Klassen
Josh Klassen
As a Business Advisor for Transworld Business Advisors of Minnesota, I am directly involved with helping people looking to buy or sell a business. My experience has included being a commodity trader and investor for a private company based in Oregon, and working for a full service brokerage and investment firm in Minnesota. I graduated with a degree in business from a private college in Minnesota. While running my own business in college, I found my passion for business entrepreneurship. This passion has grown into a desire to help business owners who are looking to sell and move on to the next phase of life, as well as helping entrepreneurs and prospective buyers find what suits them. In my free time, I enjoy being in the outdoors, camping, hiking, and playing sports.

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