DennisBeaverMay 12, 2017 • By Dennis Beaver

When an owner decides to sell the business, this can have a major impact on employees. With the right buyer, it should be smooth sailing.

But when the wrong person buys a thriving business? What, if anything, can the employees do to help prevent a shipwreck?

“Mr. Beaver, for over 20 years, I have been a repair and service technician for a small, Northern California photocopier retailer. We sell and service copiers, fax machines, scanners, and related equipment. Until recently, it’s been a second home, but now we are worried about this business remaining viable.

“Ray” started this business 50 years ago and recently sold it to “Teddy,” who is another tech here. He is competent, and a nice person. And that’s the problem. He is not merely nice, he is a wimp, overly patient with customers who hold us hostage, only paying one past due bill if we come out again and repair their machines.

“Now, accounts receivable from some of our largest customers are 90 days past due, a problem we never had before, as Ray had guts and a mouth!

“Teddy has worked here about 10 years, so his weak character was well known. The only justification for selling to him seems to be the money his family put up.

“Isn’t there a legal obligation to employees to only sell to a person able to competently run the business, and not just someone with money who will ruin it? What can we do? Thanks, Andy.”

Hanford attorney Ron Jones’ answer to Andy’s question won’t make him happy. “Unless there is some contract which prevents a sale or just closing the doors, a business owner is legally free to do what happened here.” But that’s not the end of our story.

We protect our business as we do our children

We ran our reader’s situation by Dr. Lyle Sussman, Professor of Management, in the College of Business and Public Administration at the University of Louisville in Kentucky. He is a best-selling business author and last month we reviewed his most recent book, “Breaking the Glaze Ceiling.” For anyone hesitating to take that plunge into starting their own business, it is a must read.

To Sussman, selling a business has a lot in common with steps parents take to protect their young children in the event both die in an accident.

“In a will or family trust, you can state your preference as to who should raise the kids. Typically, family members or close friends with values similar to the parents will be named. It is a way for mom and dad to reach into the future, remaining very much a part of their children’s lives.

“The same type of thinking applies to the sale of a business, where the owner should ask, ‘How do I make sure that this little baby of mine will continue to prosper? If one of my employees wants to buy it, does this person have the skills needed?”

Due diligence before sale to an existing employee

If someone outside the company were to express an interest in buying it, you can be sure the owner would do an in-depth background search. To Sussman, the same inquiry needs to be made when an employee is the potential buyer.

“There may be a great deal that you do not know about your own employees which could negatively impact the future of your business. Call it Human Resource Due Diligence for Existing Employees. You are selling your business, your baby, your dream, your vision to someone, and unless you know who that person is – beyond skill set – you could have the same kind of problem that your reader is describing.”

“Unless we do this, the business you just purchased will not survive”

So, what should the employees do? “Much as families deal with substance abuse, something like an intervention is needed,” Sussman strongly maintains, adding, “And it should be phrased in a non-threatening, yet serious way that gets the new owner’s attention.

“Two employees take him aside and tell him that unless the collection problem is solved, this 50 year old company will not survive and his family’s investment will have been lost. We may need to hire a part-time collector, but things cannot remain as they are.”

Just say no

The company or individuals refusing to pay past due invoices unless new work is done aren’t customers or clients. They are thieves and will continue to dig deeper and deeper into your pocket.

“At the first sign of this behavior, never be afraid to say No More Work until we are paid! You owe it to yourself and your employees to not be taken,” Sussman concludes.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.