Telling your management team you are looking to sell can be a daunting task. But it is a critical task and you need to prepare for the talk.

One of the key drivers of value, to a buyer, is the quality of the management team and the likelihood of them staying after the sale. All successor owners will be keenly interested in the key management team and how they interact among themselves.

More so than they are interested in you. The buyer will ultimately decide if your management team in a value driver or a value deterrent, so motivating and creating positive moral with respect to an exit is very important.

Meet with the team.

Explain why you, personally, need to move on. Explain your plans for them and why it is important for all to work as a team now, and after a sale. Make it economically worth their while. As you look to transition to an exit, it is very important to create a positive attitude towards this transaction. Now here is an important thing: in adding economical motivation for key employees, the buyer will discount much of these expenses as one-time discretionary expenses.

It often will not detract from value, but it does, of course, detract from discretionary seller earnings. Often, they will be added back to expected earnings by the buyer. What you want to accomplish is for the company to move forward with or without you in a manner where loyalty and thus efficiency matters.

You want to show employees they have a stake in the game. They matter. They are respected and loyally compensated. It is no different than if you were to take months off, they have the motivation to keep things on track. It is a small price to pay for you to have the ability to take far more time off, let alone increase the confidence of a buyer that what they are buying, the revenue, the profits, will still be there when you are gone.

The objective is to have a buyer feel 100% confident the employees have an attitude conducive to supporting a thriving business. Buyers want to know your key management team will be intact after you sell.

You also want them to be motivated and happy for you as the Buyer speaks to them about the future. Give them a stake in the outcome. This includes clear understandings of current and future compensation programs that include salaries, commissions and bonuses.

Put yourself in their shoes.

You have a relationship with them. You leave. What is left for them?

Will they have job security?

This is a concern to them and you need to make the key employees comfortable. You want them to want to stay. They want to know they will have a job or at the least, severance. Severance can be negotiated with the buyer but know the expense may also come out of the sales price if the buyer sees redundancy in the platform they intend to merge your company into. Either way, this is a time to make sure your key employees know you have their interests covered.

So, give them an opportunity to economically participate in the sale, and give them the comfort they will be either have job security or some form of severance should the buyer elect to let certain staff go after a sale. This matters to you. It is often the right thing to do for loyal employees, but it is also the smart thing to do as a business owner seeking the best sale possible.

I am not a fan of distributing equity. It is messy, and at times, creates problems. Instead, look to create “Stay” Bonuses or phantom stock plans.

We have already discussed the implementation of more robust retirement savings programs. They need to recognize this as a large benefit you are giving them, but this is something different.

Arrange for a “Stay” bonus.

This may be in the form of an incentive bonus paid to them over the year following the sale (most likely a deferred plan, paid out of your compensation from the sale), or develop a non-qualified plan where each year, a bonus gets split into an outright distribution as well as a retained bonus paid out in 2 or 3-year increments. Each year, this deferred bonus plan grows, creating an ever-increasing incentive to stay. As it is a non-qualified plan, tax issues need to be reviewed. It also can be tailored with certain vesting qualifications, where the funds are forfeited under certain circumstances.

There are several ways this can be structured, depending upon the business, loyalties of team members, and objectives of the owner.

If you want our help positioning your business ready for a perfect sale, it starts with taking our Saleability Survey.