Retaining Staff After A Business Sale

Staff Retention Critical After Closing

A key component of a company’s intangible assets or goodwill is its employment relationships with its employees and independent contractors. For many businesses – especially in service-related industries – having a trained group of staff members is essential to acquiring customers, keeping customers, and ultimately generating profits. When it comes time to sell, it is imperative from the buyer’s perspective that the company’s employment relationships be fully retained after the sale. Otherwise the value of the business is diminished along with the expectation of future profits. Retaining the staff after a business sale requires maintaining the confidentiality of the sale up until closing, creating a transitional plan that outlines the best means to transition the staff to the new owner, and the buyer and seller working in a cooperative manner after the closing along with the staff.

Staff Retention Never Guaranteed

As an “at-will” employment state, Florida law allows employees to generally quit their places of employment for any time and for whatever reason, so long as it does not run afoul of discrimination laws. This means that nobody – including the seller – can guarantee that each staff member will be retained after a business sale. In most business sales, the buyer reviews staff employment records during the formal due diligence phase in order to satisfy themselves that the staff members are trained, qualified, and able to continue their employment without foreseeable problems. Some buyers will also want the opportunity to meet key staff members during the formal due diligence phase. Any contact before the closing, however, must be negotiated ahead of time in the purchase contract and may be subject to the buyer forfeiting their deposit.

Confidentiality Key to Retaining Staff

Up until closing, it is commonly recommended that staff members remain unaware that the business is for sale. The business broker maintains the confidentiality of the sale during the sales process by using blind ads (shielding the identity of the business being advertised) and by ensuring that staff members are not present during interactions with prospective buyers. Keeping the sale confidential avoids the creation of drama and intrigue among the staff as to what will happen to the business (and their jobs) after the business is sold. This will prevent the staff from seeking employment elsewhere or shirking responsibility in their duties during the sales process. Although some staff members may resent being kept in the dark about the sale, it is usually best to still maintain confidentiality so that business is not disrupted. A non-disrupted work environment makes overall staff retention more likely which benefits all parties.

Transitional Plan

  • The transitional plan describes the way in which the goodwill of a business – including the relationship with staff members – is handed over to the buyer after the sale.
  • The seller should create a transitional plan prior to the sale and should also later obtain the buyer’s own thoughts and input on how to best transition the staff.
  • The manner in which the staff is handled depends entirely on the type of business being sold and on the staff members that need to be transitioned.
  • Some staff members psychologically need to be spoken to individually and reassured that their employment status and responsibilities will remain unchanged.
  • Other staff members won’t care much about the transition and will be glad to retain their jobs.
  • In most cases, the buyer and seller will jointly address the staff immediately after the sale in order to announce the change in ownership.
  • At that time, it is critical that the staff members are told about the buyer’s intentions, the buyer’s specific future plans for the business, and whether there is any need for staff members to start looking for other jobs.
  • The buyer of the business should be honest yet firm in their intentions and expectations for the staff.
  • Managers and supervisors are often spoken to individually by the buyer after the group meeting in order to give further assurances about their employment status.
  • As a part of the transitional plan, the seller most often remains with the business for a period of time (30 days or more) after the sale in order to help train the buyer and provide continuity to the business.
  • The seller’s presence after the sale often serves to soothe any frayed nerves on the part of disgruntled staff members.
  • Overall, the buyer is usually better off when the sale is kept confidential, and and when the transitional plan is jointly executed in a cooperative manner by the buyer and seller after the closing.

Employment Status/Non-Compete Agreements

Common reasons for a staff member choosing to leave the company after a business sale are when the buyer requires a change to the staff members’ employment status (W-2 employee or independent contractor) or requiring that staff members sign a non-compete agreement (prohibiting a staff member from working for a competing firm within a prescribed period of time and geographic area). Either change may cause a staff member to quit, particularly when the proposed requirements are not within industry norms. Also, such requirements may serve as an excuse for even further staff defections. Buyers who wish to impose new employment requirements on staff members are usually better off purchasing other businesses unless they are willing to face the risk of significant staff defections after the sale.

While often a crucial component of a company’s goodwill and hence its overall value, relationships with company staff members can not be guaranteed to remain intact after the sale. The buyer to a large extent influences whether or not a company’s staff is retained after the sale. By adhering to a confidential sale prior to closing, sticking to a smooth transitional plan, and maintaining the current employment status and requirements, buyers of businesses generally give themselves the best chances of fully retaining a company’s staff.

Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.