For most small business owners, selling up is the payoff for years of hard work and sacrifice. But as the finish line nears, a sobering reality can set in: this is far from a simple handover of keys. In many cases, it is a high-stakes balancing act that demands an owner settles their financial obligations to the people who helped realise the dream, while managing their uncertainty.

Staff are generally a business’s greatest asset, but on a balance sheet, they pose a significant hidden liability. Karen Greenidge, a partner in the Corporate and Commercial Law team at PCL Lawyers, notes that while some owners are laser-focused on their own exit, the more sophisticated ones understand that failing to account for the human element of a transaction can cost you more than money. “Especially for small businesses, a lot of the employees are considered almost like family,” Greenidge says. “You want to make sure you leave on a good note. It’s part of your legacy as well.”

Buyers Have A Tough Choice To Make About Staff

Greenidge says there are two types of business sales. In a company sale, the entity itself changes hands and the employment relationship continues as staff work under the same terms. In a standard asset sale, the purchaser is buying the business but not the legal entity, and must decide whether to offer the existing team employment. She says it’s a common myth that the buyer simply steps into the shoes of the employer, and some vendors are surprised to learn the buyer is under no legal obligation to keep their staff.

“Sometimes the purchaser doesn’t want the employees,” Greenidge explains. This creates two distinct paths for a vendor, both revolving around three core entitlements: accrued annual leave, long service leave and redundancy pay. If the purchaser accepts the staff and recognises their prior service, the dollar value of these entitlements is subtracted from the final sale price on the settlement statement. If the buyer decides not to take on the staff, the vendor must terminate them and pay out all entitlements before the sale is finalised. “So either way, it’s either directly coming out of your pocket or indirectly coming out of your pocket,” Greenidge says.

The financial stakes are real. Under the National Employment Standards, redundancy pay is calculated based on continuous service. For a long-term employee with a decade of tenure, that payout can reach up to 16 weeks of pay. “If a purchaser says ‘I’m not taking it on,’ then the vendor still needs to pay it out,” Greenidge notes. “It’s not that the employee is losing. It’s ‘who pays it out,’ basically.”

A Key Deadline Keeps Logistics On Track

To avoid a scramble at handover, most contracts of sale include a firm timeline for employment decisions. Typically, a purchaser must reveal more than a month before settlement whether they will offer a team ongoing employment.

“They usually make that decision at least 35 days before settlement because the vendor needs to know where they stand as well,” Greenidge says. This window allows an SME owner to calculate final exit costs and begin the termination process for people not being retained.

The transfer of financial liabilities is formalised at settlement through a Statement of Adjustments, the legal ledger where the negotiated price meets the reality of the ‘people debt’ accumulated over the years. By anchoring employment decisions to the 35-day deadline, both parties arrive at settlement with a clear picture of the final numbers and avoid last-minute disputes.

Communicate Thoughtfully With Staff

While the numbers are settled in spreadsheets, the true value of a business is often on the shop floor or at desks. If key staff sense instability and leave prematurely, a valuation can fall before settlement. For those who remain but on tenterhooks, uncertainty can smash productivity.

To protect against this, Greenidge recommends a phased approach to communication that prioritises confidentiality until a deal is certain. When potential buyers are walking through the premises, owners can control the narrative without triggering alarm.

If staff notice unfamiliar faces and start asking questions, Greenidge suggests framing the visits as routine: “Look, we’re just exploring opportunities to see what the business is worth and considering options,” is her suggested phrase. This may prevent employees mentally checking out before anything is confirmed.

The formal announcement should almost always wait until the contract is unconditional, Greenidge says. “If you’re not sure the purchaser will have finance, for example, you may wait for those conditions to be satisfied before you have that meeting so that you don’t provide unnecessary stress for the employees,” she advises. Telling staff too early, only for a deal to collapse, can permanently damage morale.

Once the deal is firm, she recommends leaders sit down with their teams, explain what is happening and walk them through the 35-day window for employment offers. The goal is to leave them feeling hopeful. “You really want to encourage the excitement for them going forward,” says Greenidge. “Put a positive spin on the sale… it could be a growth opportunity going forward.”

Transparency Speeds Up Sales And Breeds Trust

The smooth sale of a small business often rests on the quality of its paperwork. Greenidge encounters some SMEs that are underprepared and lack organised contracts or accurate entitlement calculations. In due diligence, not having your ducks can be a red flag for buyers. 

“You’re trying to build trust in the information you’re providing to the purchaser,” Greenidge points out. “If you don’t provide that level of trust, they’re going to discount the purchase price. They’ll low-ball you because they just have no faith in what you’re saying and the way that you’ve run your business.” Imprecise record-keeping can also slow down the due diligence process considerably, so moving to an automated, digital system can create a source of truth.

Outside of business sales, it still pays to keep thorough records. Penalties for record-keeping breaches, covering everything from time and wage records and leave balances to payslips and superannuation contributions, can reach up to $18,780 for individuals and $93,900 for companies per contravention.

Closing A Chapter With A Clean Exit

Selling a business is the final act of ownership and, like everything that came before it, how it’s handled matters. Owners who treat staff obligations and record-keeping not as an afterthought but as part of their exit strategy can walk away with peace of mind and relationships intact.