Buying a Business? Follow These 4 Steps to Keep Valuable Employees on Board

Richard Weinberger, PhD, CPA
Wed, 09 Mar 2016 12:45:20 +0000

Whether you are selling a business or buying a business, it is always an exciting time when a small business sells. Buyers are full of hope and dreams about how the newly acquired business can grow and succeed; sellers are, likewise, excited that a business in which years of toil and love have been invested has been sold, whether for retirement, another business opportunity, or a personal situation necessitating the sale.

Buyer and sellers have worked diligently with accountants and lawyers to negotiate the best deal possible for each. Exhilarating times lie ahead for both parties.

But what about the employees of the purchased business? How do they feel? Have they prospered from the sale? Have they been informed about the new journey that lies ahead?

Don’t ignore the company’s most valuable asset

So many times, buyers and sellers forget about the most valuable asset of a business: the employees. A new buyer will certainly develop his or her own unique management philosophy and revised strategic plan, but they cannot expect to carry the load alone. Valued, trusted, and motivated employees will be instrumental for a new owner to be successful.

The transition for employees to new ownership can be unsettling to say the least. Employees have grown accustomed, for better or worse, to a certain management philosophy and company culture. So, how does an orderly transition take place, so there is not a quick exodus of valued employees?

Importance of communicating with employees

Communication is a key element for a successful transition from buyer to seller, and it comes in stages. Regardless of how confidential talks are regarding a sale, employees somehow will always seem to sense when something is in the works. Rather than having the rumor mill run wild with various scenarios that might be far from reality, it is far more settling for employees to keep them informed of a possible sale with actual facts:

1. During final contract negotiations: Employees should be informed during the final negotiation period of what might be transpiring in the company’s future. Informed employees are less apprehensive about change compared to employees who receive their only information from the rumor mill. Employees want to know what's going on, and feel valued by being informed of changes that might affect their future. This can be accomplished through group meetings and email updates.

2. After the contract is finalized: As soon as a contract is finalized, all employees should be informed immediately. Group meetings are a preferred method of communication, so employees have the opportunity to ask questions and receive adequate answers. It is equally important for the purchaser to get “buy-in” from employees. It is important for everyone to be on track from day one of the new ownership.

3. Transition phase from seller to buyer: Communication during this phase is equally important, as this is the time when new procedures and policies are put in place. Employees will make the unconscious choice of either being “on board” and identifying with the new owner or becoming distant from the new owner, still identifying with the “old guard” that no longer exists.

You also want to avoid employees feeling disconnected from the company that one time held their loyalty. Group meetings and one-on-one discussions should be considered necessities of a smooth transition rather than a luxury of transition.

4. Employee benefits transition: Employees do not like abrupt changes to their benefits package. Although a new owner, including a merger into another company, might find that the benefits package for employees needs to be changed, these should be handled carefully over a period of time.

Employees will view all decreases in health insurance, vacation, and other benefits as a decrease in total compensation, which will cause immediate animosity with the new buyer. Changes should be announced in advance with a reasonable period of transition. Employees need time to adjust to any upcoming benefit changes.

Transition is a key to success

The goal of a smooth transition from buyer to seller is to keep a stable, contented workforce that will eventually identify with the new owner and assimilate into a new company culture with the least amount of business interruption. Planning in advance for a transition saves a multitude of attitude and production hurdles in the future. By planning ahead, a business purchase transition can be smooth.