You are very seriously considering what could soon be your new business. An offer has been accepted, you’re well into the due diligence phase – but the seller is incredibly reluctant to let you meet the staff. What gives?
For a Main Street business (think a small business, not a multi-million dollar business) there is a very real threat to the survival of that business if the for-sale status is divulged to it’s employees too soon.
This threat comes from the pervasive (but almost always untrue) assumption that a business for sale is a business on the brink of failure.
When the staff of a small business hears that the business is for sale, the knee-jerk reaction is to quit en masse – usually taking their regular clientele with them.
The loss of all (or even some) of the staff can be a death blow for a business that doesn’t employ that many people. As such, a seller isn’t going to want a potential buyer to meet the staff until after a deal is closed. If the meeting takes place before closing, the seller runs the risk of the word getting out to their staff, their clients and their vendors that the business is for sale. The rumors can and will spread like wildfire. If the current buyer decides to walk the seller is now stuck with an enormous mess and a complete breach of the confidentiality that is so critical in business sales.
In order to protect the business and retain the employees through the sale, a new owner will typically meet the staff right after closing.
Wait, what if I buy this business and then all the employees quit?
First, this rarely (if ever) happens. People want job stability, so finding out that a business has changed hands but is otherwise fine is not going to elicit the same response as if those employees found out that the business is for sale. Again, hearing that a business is for sale will cause a staff to completely freak out over the fear that the business is weeks away from faltering. Second, any employees that quit solely because the business was sold are probably not the kind of employees you were going to keep as the new owner anyway.
What if there’s one or two very vital key employees? Can’t I meet them?
Maybe. In the Main Street business market each transaction will follow it’s own path. In some instances it might be completely fine to meet critical staff while in others it won’t be. Each transaction, each buyer and each seller will have to figure out what is going to work in their particular scenario.
The point here is as a buyer you will have to come to the table with the understanding that it might not be in the cards for you to meet the staff before closing. Understanding this nuance of small business sales will keep you from getting stuck on this point during the negotiation process and derailing your deal.
Are you considering buying a business and want to know more about why confidentiality is so important? Would you like to know how to best introduce yourself to a new staff? Please ask us! Leave any comments or questions and we would be happy to help.
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