This issue rears its head every year and this is not always an easy question to answer. As a general rule of thumb we advise all sellers to run their practice as if they are not selling, which includes keeping the staff unaware of the sale, until the purchase and sale agreement is executed. The reasons for this are: 1) the sale is never a sure thing until it is closes, so no reason to distract or concern the staff with it until then; 2) the staff, like clients, may object to the sale simply because it is a change and they may feel they have the ability to veto it if you let them; 3) the more people who know about the sale, the less likely it will be kept confidential and the last thing you want is a staff member accidentally letting the news slip to a client.
However, every seller knows their staff better than we do and so it is really up to them whether the staff is informed or not. Sometimes, the seller and staff are really close. In some sales, there are a few key staff members that are really highly valued and the seller feels they will be hurt or offended if not informed early on.
Real World Scenarios:
In 2018, we had a seller who felt it was really important for all the staff to not only know about the sale but also to meet with the buyer early on. This was actually a function of transitioning prior to closing the sale which we also recommend against. The seller also wanted to have a sit down with two key employees and the buyer after the full staff meeting.
The seller and buyer were all excited about the meeting. The buyer was already making investments in new technology and had plans to present all the improvements to the systems, processes, and procedures to the staff and anticipated they would be excited about how much easier and more productive their jobs will be. They had the meeting with the staff and they sat down with the two key employees. The next morning the key employees told the seller they were offended by the buyer and would not work for him, and most of the rest of the staff felt the same way. What happened?
Well, remember point two above about staff disliking change and feeling they may be able to veto the sale. First, what the staff heard from the presentation the buyer gave about all the new technology and processes was “you have not been efficient enough and have not done a good job.” They also felt it was critical of the seller’s lack of investment in similar progress. Oddly, at the same time they felt a bit empowered because the seller included them in the sale before it was final. The combination of hearing those two messages made the buyer look a bit like a jerky know-it-all in the eyes of the staff and they voiced a strong objection because the seller gave them the opportunity to have an opinion on the sale before it was final.
This one critical miscommunication almost toppled an otherwise very good transaction. Luckily, we were able to diagnose what went wrong and help the seller and buyer repair the dialog with the staff and the sale closed with all the staff happily continuing to work for the buyer.
The Bottom Line:
Our recommendation is that a seller not inform the staff of a sale until they have an executed a purchase and sale agreement. If a seller feels they must inform some or all of the staff prior to that milestone, we recommend delaying as long as possible. We also recommend that any communication with the staff from either the seller or buyer makes it clear that the staff is valued and the buyer looks forward to their ongoing contribution, but be careful to not overemphasize this too much less the staff believe they have a say in whether the sale goes through.
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ProHorizons is a West Coast brokerage and consulting company focused on tax and accounting practice sales and acquisition services.
If you are planning to sell your practice and would like more information about our service, please visit our Sell Your Practice page and/or Request a Sales Information Page. If you are looking to acquire a practice, please visit our Buy an Accounting Practice page, see if there is a practice of interest in our Current Listings in the Pacific Region, and/or Register with us as a Buyer.
