Should You Tell Your Employees Before Selling Your Small Business?

Transparency or confidentiality? Learn the risks and benefits of the complicated dilemma of disclosure

This post was first published on my Medium blog—follow me there for the most up-to-date entries!

Before I decided to sell my business, I struggled with whether or not to tell my staff that I was thinking of doing so. The buyer was pushing me to meet my team months in advance of the intended closing date. I wrestled with the decision, because there are many factors to consider when deciding whether to tell your employees before selling your small business.

I read several online articles that urged sellers to reveal their plan to their staff before the transaction. It seemed that they boiled the recommendation down to four possible reasons, and some presumed outcomes that would result if you disclosed your plan to the staff. Here are the reasons they gave for disclosing early:

transparency as a means towards building trust
the opportunity to improve teammates’ mental preparation for the big change,
preventing rumors and misinformation about questions you might be asking teammates
the opportunity to give teammates time to adjust and adapt to a new leadership style, new processes, and new standards or expectations

I wasn’t convinced these tactics would be effective in any situation, and certainly not in mine. Admittedly, I might view this differently if my business were a large corporation, or if I had a different team. However, I had a small business, and the newest of my five employees had been with me for six years. So as I describe my rationale for not telling my team, keep those factors, and perhaps other differentiators, in mind.

Disruption in focus and productivity

I knew that disclosing my plan to sell would immediately set off a barrage of “what if”s and “what about”s. First, I didn’t feel sure I could confidently or clearly answer all of the questions that might pop up, and second, I thought my answers might not be satisfactory. For example, I could imagine a question like, “What does the buyer know about running this kind of business?” First, I wondered: do I really know the answer to that? Second, would my answer help to reassure the team, or would it just increase their sense of insecurity?

We all know that change fosters fear and anxiety, especially about loss of a job, demotion, or at the very least, change of role. If you’ve ever had a new boss — without or without the business changing hands — you’ve probably been uneasy about your job.

I anticipated other anxieties, too:

Marie, will you still be involved in the business, and if so, how?
Will we get additional teammates when the new owner takes over?
Will we still be allowed to have flexible hours?

I didn’t think that having my team distracted by concerns like that would lead to the best outcome, either in the sale or in my business in general. So when considering whether to tell your employees before selling your small business, consider the potential disruptions your disclosure may cause.

Employee turnover

Many sources agree that employees often walk out the door when they know a new owner will be taking over. My employees have repeatedly demonstrated a strong sense of loyalty to me, which I worried might cause them to bolt if they knew that a new boss was coming on board.

The decision to disclose or not disclose the upcoming sale became more difficult when the buyer insisted on meeting the team. I realized that the new boss would have a leadership style very different from my own, and I feared that such a meeting increased the likelihood of employees leaving. I decided against making the announcement before closing the sale because:

I’d be in trouble if the sale fell through. Without an experienced team, the business would have come to a grinding halt, and I didn’t have the time or energy to recruit new people.
Although they’d need to adapt to a new leadership style, I felt this resilient team could hang in there for a few weeks and eventually settle in.
I felt strongly about giving the buyer the benefit of starting with a very experienced team.

Could I have enticed teammates to stay by offering a bonus or some kind of incentive? Maybe. But that would only reduce the risk, not eliminate it.

Keeping my leverage

This was the scariest part for me. If I had decided to tell my employees before selling my small business, the buyer could have pressured me to meet his terms. After showing my cards, what leverage would I have left? It was tempting to just tell the team since the buyer and I had a good rapport, and I was confident the deal would go smoothly.

However, just two days before closing, a serious conflict arose. I knew the buyer was eager to finalize the deal, but as I explained in a previous post, I was ready to walk away. Had I informed my team sooner, I would have felt pressured to accept the buyer’s demands. As it was, I realized I held all the cards.

Keeping the team in the dark became harder when the buyer started doing due diligence, and raised questions that only my teammates could answer. Fortunately, I was able to ask them routine questions that didn’t seem suspicious to them.

The tricky part was gathering financial and technical details. Fortunately, my bookkeeper runs her own consulting business, and my husband is a tech expert, so I gave the buyer direct access to both of them.

Eventually, I needed a key employee to meet the buyer. I trusted her completely — she’d worked for me for over a decade and had been an informal leader within the team. I swore her to secrecy, knowing her support would be essential for the buyer’s success.

Spread of Rumors

Many of the articles I found about whether to tell your employees before selling your small business advocated disclosure as a way to mitigate rumors spreading, but I was more worried that the opposite would be true. Rumors and misunderstandings can happen even if you do tell teammates, and they might even be worse.

I wasn’t confident that I could completely control the narrative. My team was well aware that over the past year or more, I had frequently been out of town to help an elderly relative in another state. But I also knew that sales were slow with the national economic downturn and prediction of slower sales might lead my team to misinterpret the reasons for the sale or have bigger worries about their own futures.

To tell or not to tell?

Ultimately, whether to disclose your plans depends on how you perceive the risk/benefit ratio. That will depend on your specific circumstances, including the size and nature of your business, the relationship and longevity you have with your team, and perhaps your ability to negotiate with the buyer.

If you’re unsure, a middle ground might be to wait until key details are finalized (such as the established date for closing) before informing the staff. To me, an even safer middle ground would be to include a structured transition period where you step down, but you’re still actively involved in day-to-day decision making, quarterly goal setting, and strategies to achieve those goals.

When you do make the announcement, be clear about what will and won’t change, and other issues which will concern them. I’ve described some of my own talking points here.

Whatever decision you make it, make it with the success of both your team and your business in mind. If you’re reading this, I know your goal is the same as mine was: to pass the torch to a new owner who will be able to serve your business better than you can. There is no one best way to do this. Weigh the pros and cons of telling your employees before selling your small business, and inform your team at the time that will be right for you.