Key Employee Considerations When Selling a Business

Congratulations on the decision to sell your business. Perhaps you’re moving on to another venture, or retiring. You’re probably a walking encyclopedia when it comes to the operations of your business. When you’re gone fishing, who will remain to help the Buyer continue your successful legacy? In most cases, that person is your existing key employee.

Most established small businesses with any headcount have a key employee. It’s usually that special employee who fills your shoes whenever you’re not around; the person who has been with you through thick and thin, and has stayed at your side faithfully as your business has grown over the years. It’s the one person at the company who cares about the business almost as much as you do.

With your departure from the company, it’s no wonder that Buyers become very interested in your key employee. After all, from the Buyer’s vantage point, what happens if the key employee also leaves the company?

It’s not an understatement to say that the loss of a key employee during a business sale transaction has the potential to derail a deal in the 11th hour. For this reason, it’s important that the key employee is happy in their role, and is likely to stay on board through the coming ownership transition.

So why not confide in your key employee upfront – tell them in confidence that you’ll be selling the business? Like many aspects of selling a business, things are often nuanced and tricky. Confiding in your key employee upfront could backfire. Such unexpected news could instill fear in your Number 1, and you may have inadvertently prompted them to dust off and update their resume – exactly the outcome you want to avoid. So when should you confide with your key employee?

At some point in the due diligence process, the Buyer will want to meet your key employee. This can be sensitive for everyone involved, and we typically recommend delaying this inevitable meeting until the very end of the due diligence process. So long as all the other conditions of the deal are met, only then will you permit the Buyer to meet with your key employee.

While it may seem obvious, it’s worth mentioning that a savvy Buyer should be extremely open to the idea of maintaining every existing benefit for that key employee; or perhaps even sweetening the compensation package in exchange for the key employee’s continued loyalty.

Virtually every deal is unique in terms of how and when a key employee is alerted to the possible sale, and the related strategy of how this employee is introduced to the Buyer. At Sunbelt, we can coach you on a wide range of such subtle but important aspects of selling your business.

 

Jordan Zweigoron is a Senior Advisor with Sunbelt Business Brokers. He can be reached at (408) 436-1900, x105, or at jordan@sunbeltbayarea.net. Or connect with Jordan on LinkedIn.