In most transactions, the Buyer and the Seller see staff as part of the business without giving much thought to their importance.  Staff are not bought and sold at the purchase price.  They must agree to accept the new owner.  If their working conditions are going to be no different than at present, there should be no problem.  But, if not, the Seller must be careful. The staff may want to leave and he could become liable to pay them, not only for leave and sick pay but also a severance pay of one week’s wages for every year they have worked for the business.

The Buyer could have the same problem in having taken the business over as a going concern with all the staff on the same terms and then find in a few months’ time that the business is overstaffed and some need to be retrenched.  He would then be responsible for any severance pay, not only for the short period you have had the business but for the whole period they have worked in the business.  My advice is to chat to a labour lawyer or consultant.

Ensure that right at the start, you receive a complete breakdown, not just the number but, job function, pay and length of service in the business. Establish whether they are unionised and if they are paid the recommended rate.

Many small to medium-sized businesses are paying higher rates than laid down, but some are exploiting their staff, especially where the business does not fall under any union category.  As the buyer, you could be purchasing a load of trouble.  Another important point is whether key staff receive any special perks. 

A hardware store for sale comes to mind, which did a few home deliveries, but nothing of any importance.  The seller wanted to remove the bakkie from the business and the buyer could see no problem with this, as he would just do the small number of deliveries in his own bakkie.  What was not disclosed, was that the employee who ran the paint section and did all the mixing and matching of paints, used the bakkie to go to and from work, as well as dropping staff off at the taxi rank and had used over the weekends. Fortunately, this was discovered prior to takeover and the bakkie was included in the sale. Otherwise, the buyer could have had an unnecessary problem when taking over the business.

In sale negotiations, staff are the last to know the business is for sale.  Naturally, if they knew, they would be anxious and could leave, with repercussions for the business.  However, whether staff know or not, immediately the sale has been finalised, the seller and buyer should put them in the picture and reassure them of their job security.

This is part of the series A-Z in Buying a Business by Mike Hindle of Affiliated Business Brokers