In many small businesses, the owner is often the truly key employee responsible for driving the sales and profits. In fact, a quandary many buyers face is with situations where the owner is “the business” however, there are situations where retaining certain key employees is fundamental to the ongoing success of the business under new ownership.

The first thing a buyer must do is to properly gauge the importance of specific employees. If a business has low level, hourly employees who can easily be replaced, there is no need to get overly concerned about whether or not they will stay. To this point, it is not necessary for a buyer to meet with employees of a company pre-sale if in fact these are basic employees who of course are important, but their departure will not really impact the business.

However, wherever possible, prospective business buyers should endeavor to meet with truly key employees before a sale. This is also important from a standpoint of knowing that the business can never be held hostage by any non-owner. After all, if the business is totally reliant on one key employee, does it really make sense for you to buy it?

Keep in mind that the incidents of employees leaving after a sale are far less frequent than most buyers believe for a few reasons. First, it is change, and the uncertainty thereof that concerns employees. Once they realize that nothing drastic will happen, they will simply carry on with their work. Second, and quite obvious today, jobs are not plentiful. As such, it is simply not that easy for anyone to get another job.

However, what about situations where there are key employees or ones that hold certain licenses for example that a business may need to operate. In these cases, it is important for a buyer to meet these individuals as part of their due diligence review. Yet, they, the buyer, must understand that a seller will almost always buck at this provision and it is understandable. A seller is always going to be concerned about word getting out of a sale and especially if it does not materialize. As such, in these situations, meetings with key employees have to be arranged at the point where all other deal conditions have been satisfied.

Next, the question becomes how can a buyer guarantee that an employee will stay? The short answer is they cannot. Contractually, a seller cannot bind anyone else so forget the idea of including language in a contract whereby a seller agrees that specific employees will sign an employee agreement. While a buyer can certainly have a condition of the deal to provide for certain employee agreements to be executed, this can only be done between the buyer and employee.

What also needs to be considered is whether or not a buyer even wants to be bound by an agreement with any employee. On the one hand, a buyer may want the security of knowing an employee is contractually obligated to remain, but what if they soon discover they want to terminate them? Personally, unless there are highly unique circumstances, my recommendation is that a buyer should defer such agreements and obligations until such time as they (the buyer) has an opportunity to work in the business and effectively measure the so-called key employee’s contribution.

Presented By: Dwight Lester, Performance Business Brokers, Edmonton Alberta