By Alex Dodgshon

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How to retain staff when selling your business

TAGS:  Business Exit Strategies, Exit Planning, Exit Strategy, Maximising a Business Sale Price, Risk Management, Scaleable Business, Second Tier Management, Selling a Business

Retaining staff and key employees is crucial to a successful business exit and achieving maximum value from your business sale. If essential members of staff were to leave your business either before or immediately after its sale, this could destabilise operations and impact business continuity. Something a buyer will be very aware of.

When potential buyers assess a business, one of their key considerations will always be retention of key employees. How many staff will be employed by the business post sale? The continuity and consistency key members of staff bring equate to greater perceived business value. Once they have these facts to hand, buyers will structure any offer they make to mitigate and guard against any risks they see.

The risks of losing key personnel

Imagine being in a situation where your business employs one or two key people who know everything there is to know about your customers and how your business operates.

Perhaps one of those people is you, the owner. You probably don’t intend to be there following the sale. Will the other knowledgeable people stick around to help the new owner? Or are they planning their own exit too?

Often referred to as having a “2nd tier of management” who will remain in the business after the owners have sold also widens your buying pool to the investor community. These are people or groups who want take up ownership of numerous businesses and oversee the strategic direction of each, but need others to deliver it.

Managing your staff into a new phase of business ownership is a critical part of planning in your business exit strategy and vital if you are to achieve the best possible outcomes. 

Balancing the needs of buyers and employees

Buyers and staff look at a business sale from very different perspectives.

In most business sales the buyer will look to retain people with important knowledge and expertise within the business. This ensures a smooth transition with minimal disruption to business operations and customer experience. Sometimes the new owner might offer key employees incentives to stay.

In the 2-3 years before selling a business, its not unusual for key staff to be promoted into the 2nd tier management positions a buyer will look for. The uplift in sale value will recoup the additional cost of embedding your best people in these roles.

One trend becoming more prevalent in the UK is for buyers to acquire a business to fill a specific skills gap, particularly in the engineering, technology, digital, pharmaceutical and financial services sectors. According to a recent study by PricewaterhouseCoopers (PwC), more than a third of UK SMEs say they need to employ more specialist staff in order to grow over the next two-to-five years.

From a staff viewpoint, the sale of a business can be an incredibly unsettling time. Employees may worry that their role is at risk, be concerned about redundancy or what the business will look like in the future. It can also be a time of excitement and new beginnings with opportunities for growth and development.

Careful exit planning will minimise uncertainty for buyers and employees.

Staff are a valuable business asset 

Responsible employers understand that people are a highly valuable business asset. It doesn’t matter if you employ 2 or 200 people; if they are long-serving employees or recent recruits. Your team know your products and services, your processes, your clients, customers and suppliers, as well as the quirks of ‘how we do things around here’.

Retaining people with specialist know-how, skills and expertise should be a priority. To minimise the risk of losing valuable expertise, it’s also sensible to share business skills and knowledge with more than one person. No business owner wants to be in a situation where losing one or two key employees equals a significant drop in business valuation or significant likelihood of deferred payment terms.

Which key staff members should be included in the sale?

While every prospective buyer has their own priorities, second line management are particularly valuable. Hiring staff is not cheap or quick. If you cannot retain key staff, the buyer may withhold part of the funds until they have successfully recruited credible replacements.

A buyer is most likely to want to retain senior employees in the business. These roles usually cover finance, operations, HR, and customer, supplier and sub-contractor relationship management.

Why retaining key staff is essential to selling your business

Staff retention is one of the top questions a buyer will ask when researching a business for sale. Failure to include key staff members in the sale or to communicate your vision effectively may impact the value you can achieve from your business sale. Retaining key staff is just one aspect of planning your business exit. Check out our complete checklist for selling a business for more on this subject.

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