One of the common concerns of business owners wishing to sell is making sure their employees are taken care of. Coincidentally, one of the common concerns of business buyers is also making sure employees are taken care of. So it is interesting that with such a common concern that this is a problem area in acquisitions.
The fact is, the concerns are a little bit different. The business owner often wants his employees to be rewarded for their hard work. The buyer, of course, doesn’t care much about the past, they want the employees to be good motivated employees going forward under the new ownership. This difference is where things sometimes get crossed up.
I experienced this first hand. I sold my tech business in the 90’s and wanted to share some of the purchase price with a couple of my key people. I gave them a bonus out of my proceeds, and one of the sales people took it and quit within a few weeks for job on the other coast. Whoops. That wasn’t my intent, but the fact is the bonus did help him move out to the new job. He was concerned that things were not going to the same under the new owner, but unfortunately he didn’t even give it time to find out.
In hindsight, and now that I’m in the business of helping business owners sell their business, this is the way I should have done it: I should have set up an escrow account and put the bonus funds in there, and made it payable as a “stay-on bonus” each month the key employees showed up for work. If they left, the money could have been returned to me. If there were let go (without cause) by the new owner, the rest of the money in the account would be released to them. I didn’t get 100% of my money up front in the acquisition. So it wouldn’t have been a problem to explain that I wasn’t getting my money right away, and neither would they.
For business owners I’m involved with now, I like getting to talk to them before they make decisions involving employees so we can talk it through, and try to make sure they are not backing themselves into a corner with a potential buyer. It is important to discuss key employees and any possible issues, so we can try to work out solutions with the buyer.
I had one business owner wanting to give out raises shortly before the close of a deal. It was a case of bad planning (and a bad memory); since the employees had to point out to him they were way behind on reviews and raises. The owner didn’t realize it, but this basically comes down to the fact that he misrepresented earnings since it turned out he was under-paying his employees. We were able to discuss different scenarios with the owner, so when we approached the buyer with this issue we could react quickly if needed in order to prevent it from blowing up the deal at the last minute. With some negotiating, the buyer agreed to the raises.