Most business owners are afraid to talk to anyone when they are ready to sell their business.

They fear the competition will find out and use it to their advantage. However, there are more things to fear than your competition. Discovering that your business is for sale will also impact vendors, customers, employees, lenders, and your family. It is important to think about when each of these parties should be notified about a possible transaction. Typically, people assume the worst and fear the unknown. Thus, the best time to disclose the business is for sale is after facts and timelines are known, especially when it will have a direct impact on them.

Every situation requires different timing on when to reveal that you plan to sell your business. It is necessary to contemplate the timing, reasons, and exceptions for informing each party that you are selling the business.

Advisors

Timing: Your Investment Banker, CPA, Attorney, and Financial Planner should be told of your intent to sell when their role begins in the process.

Reasons: To have the best chance of a successful transaction, you need to hire advisors experienced in completing deals. An investment banker should be consulted before talking to anyone so they can manage the process and messaging. It would be best if you alerted your CPA when you need the estimated tax impact of a transaction. Your attorney should be contacted when you are at the formal Purchase Agreement stage. Your Financial Planner can help you determine your best post-transaction investment options after you have a signed Agreement.

Exceptions: Very large or complex transactions may require the advice of these advisors earlier in the process.

Vendors

Timing: In most cases, vendors should not know until after the sale is finalized.

Reasons: Vendors may be concerned about honoring payment terms, the buyer using their own vendors, volume changes, and increased demands from the new owner.

Exceptions: If there are long-term contracts in place, the buyer may want to confirm the contracts will be honored with a change in ownership. If you have overdue payments, disclosing that you are preparing to sell the business may encourage them to keep selling to you. If a vendor is a prospective buyer, they will need to be notified when you take your business to market.

Customers

Timing: In most cases, you never want customers to know the company is for sale. You want the business to continue servicing the customers before, during, and after the transaction since it should not matter who owns the company.

Reasons: Customers will fear a new owner may change their pricing or service will decline. They may even wonder if the new owner will want to sell to them or take the company in a different direction. Customers become attached to employees, so they may fear their favorite employee will be let go. If you are the primary contact for a customer, they worry about how the new owner will treat them.

Exceptions: If there are long term contracts in place or if most of your sales are to a few customers, the buyer may want to confirm with these customers that the sales will continue after a transaction. If your business is falling behind on requested ship dates or you have no succession plan in place, you may want to tell customers earlier in the process so they are confident in your business’s future.

Competitors

Timing: Delay discovery by competitors for as long as possible. Eventually, they will find out, but first, you want the new owner to prove to customers and vendors that conditions after the transaction are the same or better, so they do not go to competitors.

Reasons: Competitors will try to cast doubts with your customers using the fear of the unknown.

Exceptions: Sometimes, competitors can pay the most for your business. Timing is critical when to bring a competitor into the selling process.

Employees

Timing: Typically, it is the day before the transaction.

Reasons: Employees will be impacted the most by a new owner. They fear how their pay, job duties, and expectations will change. They assume, often incorrectly, that there will be layoffs. People read about huge corporate mergers resulting in significant layoffs. This is not typical when selling a small or mid-sized business. However, perception is the reality in their minds.

Exceptions: A few key employees need to be brought into the selling process. They will be needed to present the company in the best light, and the buyer will want to know they will stay after the transaction. If you have not been reinvesting in the business or are well past retirement age, knowing there is a process to transition to a younger owner may encourage employees to stay. If an employee may be interested in buying the business, they will have to be brought into the process early. Be aware that most employees do not make good owners and do not have the needed financial resources.

Lenders

Timing: Notify after a Purchase Agreement has been signed.

Reasons: Lenders may get concerned if the business will decline due to the distraction of a transaction. Lenders do not want to lose you as a client. Some lenders are not good at keeping secrets.

Exceptions: If you are behind in loan obligations or missing covenants, telling the lender you are selling may increase their willingness to work with you. If the buyer wants to use your existing lender to finance the transaction, the lender may need to be brought into the process sooner.

Family

Timing: This can often be the toughest to know when the timing is right. Every transaction can be different, and each family member can be different. Generally, once you have committed to selling your business, family members should be told.

Reasons: Family members do not like surprises. Family members can sometimes play hardball to try to derail a transaction. Children will wonder how a transaction will impact their inheritance. Sometimes timing can be based on need-to-know.

Exceptions: If family members are not impacted, there may be no reason to disclose the process. If family members are shareholders or have loaned money into the company, they will need to know earlier in the process. If family members are employees, they and the buyer will need to know if their employment will continue after a transaction.

Deciding when and how to tell impacted parties is difficult. In some cases, it can be the most critical aspect of the transaction process. A communication plan must be established before putting your business up for sale. Talking with someone specializing in business transactions and having experience completing deals successfully will help ensure that you get it right.  Getting it right can mean maintaining a good relationship with your family and employees as well as obtaining the highest value for your business.