I was giving a speech yesterday in Mississauga and a business owner asked me when he should tell his employees that he is considering selling his business. His question triggered memories I would rather have forgotten.

My advisors told me I would need to notify my managers early so that I could present a management team to prospective buyers. In my case, I told two key managers and they agreed to help me sell the business. The conversations were tricky. On one hand, my managers were relatively young and ambitious and looked forward to the  chance to work for a more professional company  On the other hand, they were smart enough to know the integration of one company into the next would get messy.

I waited until the deal closed before telling everyone else on my team.

Telling your employees that you intend to sell your business one day is an intensely personal decision. Some argue you should share equity with all of your employees from the start and make it clear you intend to build, flip and share the spoils widely. Others argue you should hold your cards close and not tell anyone you’re planning to sell until the last possible moment. This ensures customers and employees don’t get spooked, but requires a degree of duplicity many are uncomfortable with.

I opted for a Machiavellian hybrid: telling my managers and hiding it from everyone else.

When I finally revealed to my employees that the company had been sold, I felt like a fraud.  For years I had been minimizing salary increases, scrutinizing expense claims and preaching thrift to my employees insisting they put the company’s needs ahead of their own and I was doing the exact opposite.

In the end, my hybrid model worked. I was able to merchandise a management team to potential acquirers without the distraction of having an entire company worried about their jobs. It would have been more honest to be truthful with everyone but perhaps less successful.

I hate it when effectiveness is the enemy of honesty.

Have you shared your long-term exit plans with your employees? Do they know you’re considering your options? If so, how have you kept them engaged and loyal in the face of upcoming upheaval? If not, when and how will you tell them? Please share you comments below.

If you want to tell your management team and need a carrot to energize them about helping you sell your business, you can use a Long Term Incentive Plan.

Here are four new articles about creating a business you could sell. I hope there is a nugget or two in there you will find helpful.

Did last year drag your company’s value down?

~ published April 6, 2010 The Globe and Mail

I had coffee with a business owner who wanted to know what kind of multiple he could get for his business.

He owns an ad agency and he had heard that marketing services businesses are going for between “four and five times,” by which he meant four to five times earnings before interest, taxes, depreciation and amortization (EBITDA).

The key question is, four or fives times what? Most business owners focus on the multiplier and spend less time on what they are multiplying. Some buyers will calculate their valuation by taking your last complete year and applying their multiple to your reported pre-tax earnings. Others will take a blend of your earnings from the past three years.  » more

Supercuts versus Tony the superstylist

~ published April 7, 2010 The Globe and Mail

I discovered Tony when I stumbled into his hair salon in downtown Toronto one day, running late for a meeting, and asked for a quick trim. Tony obliged and he had me out the door 15 minutes later, cleaned up and $28 poorer.

I thought $28 for a haircut was a lot, but I liked Tony, and I assumed he had some considerable expenses given his location in downtown Toronto. His salon was right across the street from my office, so I went back to see Tony a month later.

Every time I returned, Tony welcomed me by name and ushered me to his chair with an easy smile. I became loyal to Tony and went back every five weeks or so for 10 years. Sometimes I would call for an appointment on Tony’s day off and be offered another hairstylist, but I usually waited, preferring Tony’s easy banter about life back in Italy and his low-key demeanour. » more

Appraise a company long before sale

~ published April 8, 2010 The Globe and Mail

Do you know what your business is worth?

I used to collect hockey cards: Guy Lafleur, Darryl Sittler, Tony Esposito, Wayne Gretzky in his rookie year — I had all of the biggies for a kid growing up in the late 1970s.

As time went on, I kept them in perfect condition nestled under the clothes in my dresser drawer. Since then, I’ve lived in eight different places, travelled, married and had kids, and those hockey cards are still with me. I’ve always wondered what they might be worth, yet I have never had them appraised. » more