Most business owners are afraid to talk to anyone when they are ready to sell their business. They fear the competition will find out and use it to their advantage. However, there are more things to fear than your competition and in reality your business should be robust enough to withstand your competitors talking about you. In general Vendors are over sensitive to the possibility that their business is for sale becoming known, and this can create unnecessary barriers to the sale process.
The best strategy is to understand, prepare for and manage the disclosure of your business sale, but at the same time accept that you cannot maintain complete control over this, if you are committed to the sale.
Discovering that your business is for sale will also impact suppliers, customers, employees, lenders and your family. It is important to think about when each of these parties should be notified about a possible transaction. Typically, people assume the worst and fear the unknown. Thus, the best time to disclose the business is for sale is after facts and timelines are known, especially when it will have a direct impact on them.
Every situation requires different timing on when to reveal that you plan to sell your business. It is necessary to spend time contemplating the timing, reasons and exceptions for informing each party that you are selling the business.
Advisers
Timing: Your accountant, lawyer and perhaps your financial planner should be told of your intent to sell when their role begins in the process.
Reasons:
To have the best chance of a successful transaction, you need to hire advisers who are experienced in completing deals.
You should alert your Accountant earliest as you may need to get accelerated work done to produce various financial reports, and for tax advice on the aspects of the transaction.
A lawyer should be contacted when you are at the formal purchase agreement stage. Note this may NOT be the lawyer whom you have used previously, as it is essential to use a lawyer with experience in business sales. It is a specialist area and far better to access someone who has experience of multiple and regular transactions rather than the odd one or two.
Your financial planner can help you determine your best post-transaction investment options after you have a signed Agreement.
Exceptions: Very large or complex transactions may require the advice of these advisers earlier in the process.
Suppliers
Timing: In most cases suppliers should not know until after the sale is finalized.
Reasons: Suppliers may be concerned about honouring payment terms, the buyer using their own suppliers, volume changes and increased demands from the new owner.
Exceptions: If there are long-term contracts in place, the buyer will likely require the contracts to be assigned or maintained with a change in ownership. In this instance it is essential to understand your Supplier Agreement and most likely you will need to contact your supplier personally to understand exactly their approach to a change in ownership.
Customers
Timing: In most cases, you never want customers to know the company is for sale. You want the business to continue servicing the customers before, during and after the transaction since it should not matter who owns the company.
Reasons: Customers will fear a new owner may change their pricing or service will decline. They may even wonder if the new owner will want to sell to them or take the company in a different direction. Customers become attached to employees, so they may fear their favourite employee will be let go. If you are the primary contact for a customer, they worry how the new owner will treat them.
Exceptions: If there are long-term contracts in place or if most of your sales are to a few customers, the buyer may want to confirm with these customers that the sales will continue after a transaction. If your business is falling behind on requested ship dates or you have no succession plan in place, you may want to tell customers earlier in the process so they get are confident in the future of your business.
Competitors
Timing: Delay discovery by competitors for as long as possible. Eventually, they will find out, but first you want the new owner to prove to customers and vendors that conditions after the transaction are the same or better so they do not go to competitors.
Reasons: Competitors will try to cast doubts with your customers using the fear of the unknown.
Exceptions: Sometimes competitors can pay the most for your business. Timing is critical on when to bring a competitor into the selling process.
Employees
Timing: Typically, it is the day before the transaction ie contract is signed.
Reasons: Employees will be impacted the most by a new owner. They fear how their pay, job duties and expectations will change. They assume, often incorrectly, that there will be layoffs. People read about very large corporate mergers resulting in significant layoffs. This is not typical when selling a small or mid-sized business. However, perception is reality in their minds.
Exceptions: A few key employees need to be brought into the selling process. They will be needed to present the company in the best light and the buyer will want to know they will stay after the transaction. If you have not been reinvesting in the business or are well past retirement age, knowing there is a process to transition to a younger owner may encourage employees to stay. If an employee may be interested in buying the business, they will have to be brought into the process early. Be aware that most employees do not make good owners and do not have the needed financial resources.
Lenders
Timing: Notify after a purchase agreement has been signed.
Reasons: Lenders may get concerned if the business will decline due to the distraction of a transaction. Lenders do not want to lose you as a client. Some lenders are not good at keeping secrets.
Exceptions: If you are behind in loan obligations or missing covenants, telling the lender you are selling may increase their willingness to work with you. If the buyer wants to use your existing lender to finance the transaction, the lender may need to be brought into the process sooner.
Family
Timing: This can often be the toughest to know when the timing is right. Every transaction can be different and each family member can be different. Generally, once you have committed to selling your business, family members should be told.
Reasons: Family members do not like surprises. Family members can sometimes play hardball to try to derail a transaction. Children will wonder how a transaction will impact their inheritance. Sometimes timing can be based on need-to-know.
Exceptions: If family members will not be impacted there may be no reason to disclose the process. If family members are shareholders or have loaned money into the company, they will need to know earlier in the process. If family members are employees, they and the buyer will need to know if their employment will continue after a transaction.
Deciding when and how to tell impacted parties is difficult. In some cases, it can be the most critical aspect of the transaction process. A communication plan must be established before putting your business up for sale. Talking with someone who specializes in business transactions and has experience completing deals successfully will help ensure that you get it right. Getting it right can mean maintaining a good relationship with your family and employees as well as obtaining the highest value for your business.