If you’re selling your business, it’s critical that you make sure your team stays happy and motivated during the process, to avoid any potential issues with the sale itself. Helping a buyer take over your successful business is quite the undertaking and requires help from a large part of your team to happen smoothly.
Unfortunately, when your team finds out that you’re selling the business, they could go through a wide range of emotions -- and even lose focus and become unproductive. As your sale moves forward and due diligence begins, your buyer will be poking around the business more, and more. Even if you don’t tell your team members that you’re selling, they will know something is up.
It’s best to be upfront and honest with them. However, sometimes being upfront isn’t enough. For times like those, you’re going to need to incentivize the process to help boost morale during the transition.
Dealing with Internal Issues During Your Exit
The last thing you want happening is a team that believes you have turned your back on them. This is especially true for those members in key positions. If you don’t manage their expectations, losing them during the transition process could completely kill your deal or destroy your sale price.
You may need them to help you prepare detailed reports for both your operations and your finances and help your investor work through their due diligence. Selecting the team that you will utilize to handle the transition will be the first move you make.
Talk to Your Team
One of the worst things you can do when you’re planning an exit is to keep them in the dark. If they find out that you are selling and you have avoided telling them, they will feel that their jobs are on the line and that you’re trying to make a quick escape. This will completely destroy morale at a time when you need to make sure it’s at the highest.
Options for Incentivizing Your Employees
The culture that your team has helped build can determine the type of incentives you will need to offer. Ensuring everything moves smoothly and your team is well taken care of can be done by using one of a few different incentivization strategies:
One strategy you can use is to hope and pray that your team is going to remain loyal and put in extra work during the transition period without giving them any extra incentivization.
This is an incredibly risky strategy unless you can guarantee that the buyer is going to keep your employees in place. If you have any doubts about your team’s future with the buyer, hoping and praying that they’ll help you make an exit is a bad choice. You could even harm your possibilities for making a smooth transition if you lose key members during the process because you didn’t offer them any extra incentives.
Incentives Upon Completion
A particularly effective strategy for keeping your team happy and motivated is to offer them incentives based on the transition happening without any eventful setbacks or problems.
If you are worried about your team’s employment opportunities under the new owner, this is a great way to get them to help you go through the process. They will know that they will receive a reward if they stay until the transition is completed. The amount you offer will vary greatly on the size of your team and their role in the business. The incentive can range from anywhere as low as 25% of their yearly salary to 100% of their yearly salary.
CIC, or Change In Control, arrangements are another strategy you can use to help provide enhanced severance to your team members.
These arrangements are typically made to key employees that report directly to you or one of your executives. They can also be made for team members that have unique skills that your buyer is going to require to sustain the business. Those key members are usually the most vulnerable because they typically earn the highest salary. Should these members be terminated once the buyer takes over, they will be provided with a 50% to 200% compensation based on their yearly salary, including a continuation of their extra benefits.
CIC strategies are great to use because there is no cost associated with the incentivization should the business fail to sell.
Retention-based incentive strategies are only paid after the transaction has been completed. Unless employment is terminated prematurely, which will require the incentive to be paid out immediately. The amounts are similar to a CIC strategy.
The Benefits of Incentivizing
True, most of these strategies will reduce how much you get from the sale. The price you’ll pay to keep your employees happy and motivated during the transition will far outweigh the costs. Making sure that your team is taken care of before, and after the sale is critical. You can look at each of these strategies as “transaction insurance” to help ensure a smooth sale. Employees that are motivated are also attractive to your investor and will make it far more likely that your investor will retain those employees after the transition has happened.
Jock is the founder of Digital Exits, an online brokerage service. Jock has been featured in Forbes and contributed to numerous websites and podcasts. He specializes in appraising and buying/selling online businesses and enjoys helping other entrepreneurs do business online.