What and When Do You Tell Your Staff About Selling Your Business
Updated: Jun 30
Part 2 of Catherine Maley’s interview of Lamar Rutherford for the podcast, “Beauty and the Biz”: What and When Do You Tell Your Staff About Selling Your Business.
When you’re thinking of selling your medical business or practice, where does the staff fit into this?
The staff is part of the business. What buyers are really paying for is the return on the investment. When they invest in your business, they want to make sure they get that annual income that you're making. To make that income, they need the assets of the business -- and part of the assets of the business is the staff, as well as your processes and procedures, your equipment, your brand name, it's all part of the business purchase. And so the more that staff is willing to stay, the better the value. If the staff all leave when you leave, it's almost like all the buyer is getting is a patient list. It's a lot less valuable.
Straight asset sale versus bulk asset sale
The most common purchase is what's called a bulk asset sale. That's different than a straight asset sale. A straight asset sale is where they're just buying your equipment and maybe your patient list. A bulk asset sale is essentially buying your whole business. It's similar to a stock sale. But the advantages of a bulk asset sale over a stock sale for both buyer and seller is that once you complete the bulk asset sale, you can close the previous entity , so there’s no risk of previous liabilities. Even if there weren't any liabilities, there might be something that comes up. If it's a stock sale, then everything goes with the sale. So, the difference between a bulk asset sale and a stock sale is that with a bulk asset sale, one entity closes and another one opens.
All the employees end up getting laid off and then rehired with a new entity. And that happens basically overnight. You have to get them to re-sign.
But with a stock sale, because it's part of the entity already, then they just continue with it. So it's slightly easier.
So that's just asset sale versus bulk asset sale versus stock sale.
Will the employees stay?
With employees, you generally want them to stay, and a lot of times buyers will negotiate that they want those employees to stay. Of course, you can't ever make an employee sign a contract where they have to stay, it's employment at will (at least in California). If the buyer really wants those employees to stay, you can give them bonuses after they stay a certain period of time.
Sometimes buyers want to meet the employees and get the employees to sign an employment contract before the deal closes. I'm always very careful about that, because you never know until a deal closes that it's really going to happen. We had one deal where two hours before the money was being transferred, the buyer got slapped with a lawsuit, and the bank froze everything.
We always want to keep the stress low for patients, for employees, for everyone. So, we recommend not telling employees until the deal closes, unless you really feel like you have a relationship where you need to disclose it, or it's required as part of the purchase. But usually, we want to tell employees as close to closing as possible.
I've sold my own businesses, and it's difficult, but generally I think it's easier to tell employees once you know the answer. So, if you tell them that, yes, we've been working on this, I'm sorry I couldn't tell you earlier, but I wanted to wait until we were sure. And I also wanted to be able to introduce you to the new owner and make sure that they were great. That generally works best for all involved.
In my consulting, a process that works fairly well is when you bring in an associate that the doctor is willing to groom. Everyone feels everyone out, make sure they have a good match with good values that are congruent. Then the staff's comfortable, everyone's comfortable and now they have a meeting. “We are going to be selling to this doctor in a year or two.” So you cruise into it instead of like this huge shock.
I highly recommend that. I think if you can find someone who's a good fit, you can kind of test them out as maybe an employee or a staff person. Then maybe they earn ownership over time, or maybe they buy it out at a certain point, or they buy a percentage and then buy more.
I help structure a lot of those deals. I think that's one of the great ways to do it. Sometimes these private equity groups that are buying practices have a system for doing that -- if you don't have someone then you can sell to them, and they can find someone to bring on and help make that transition smoother.
See the entire video podcast at: https://www.catherinemaley.com/videocast/interview-with-lamar-rutherford-mba/