The place to start is by deciding how you, the executive, see your role in the new arrangement. If no offer has been made, you could still think through what you'd like your role to be. Ask yourself these questions:

Will you work to maintain client relationships?

Can you continue on in a management position?

Are you willing to work part-time?

Can you commit to a certain length of time, or agree to be a consultant?

Is it time to tell yourself, “Job well done, I'm out of here.”?

The next step is to do a thorough due-diligence on your own business. Many potential buyers will expect you to do this on your own. Therefore, it is in your best interest to do this when there is no pressure to finish the analysis. The due-diligence report consists of a thorough business assessment in which you pull all the materials the buyer will require before you are asked for them. You will have to put all of the information in writing when a suitor comes to call, so get it done now.

The information should include a narrative background of your company, including how long it's been in business, growth over the past few years, any significant changes in producer capacity, any acquisitions over the years, locations, principal suppliers, and marketing history.

Of course, the financial short list will include the usual declaration of assets, liabilities, and tax data. You'll need to show compliance with federal and state requirements, and sales records for the past three-to-five years.

Looking Backward and Forward

If there has been a decline or there is some negative history found when appraising the business, the best action is to address it up front. Facts are facts, and if you document the problems and the steps taken to solve them, it will give a potential buyer a sense of security that there are no other hidden problems.

As with all transactions as complex as a merger or sale, a crucial component is retaining the best corporate attorney possible. The overwhelming majority of business owners have little if any experience in acquisitions and sales. You need someone to give you good advice and to draft a strong confidentiality agreement. As part of the sale process, you'll be releasing a lot of information. You want to minimize the business risk of releasing information to competitors. This is especially the case if there is more than one potential buyer.

This early preparation works both ways. In addition to performing a detailed examination of your own company, you need to spend adequate time investigating a potential buyer. This is where the human resource piece really comes into play. At the closing of a sale, most buyers quickly will move to put in place their employee policies, benefits, and impose their own management style. Both you and your staff need to be prepared for these changes.

Sizing Them Up

Be prepared with detailed questions for the interested buyer: Have they filed in concurrence with ERISA? Are they in compliance with contributions to their 401(k)? The buyer may not divulge all the answers you seek, but by asking detailed questions, you can judge how business savvy they are, and whether they take their fiduciary responsibility seriously. If someone seems too flippant, it may be a sign of disorganization.

By being proactive, you also can judge whether the buyer is really only interested in market share and is just giving you lip service about your staff's welfare. Listen for any hint of past litigation, such as Equal Employment Opportunity issues, workers' comp claims like carpal tunnel syndrome, and any other labor-related incidents. How do they talk about their own staff?

High on the list is to get a feel for the culture in the buyer's office. Is it autocratic or democratic? What is the management team's style? Does it feel compatible? Are they saying who they'll keep on from your existing staff? When larger companies buy out smaller operations, it often means the staff will receive better pay and have more career opportunities. However, that may come at the loss of the flexibility that small offices can offer.

It's really important for the business owner to review with his staff some of the hot-button issues, and try to come up with a plan to ease the transition. Staff questions that emerge right away include:

Do I have a job?

Will my pay be affected?

Will my benefits be affected?

What about that graduation or wedding I've saved my vacation for?

The best advice? Write down any promises made to staff. The buyer must address these issues ASAP. Nobody wants to lose these employees. You want to satisfy the producers and key staff, keeping them energized. You cannot be concerned about benefits while growing the business.

Buyers must know what environment they are buying into. In some cases, there is no flexibility – often regarding benefits – but the new employer may be able to give some latitude to make the transition more palatable. Sometimes arrangements can be “grandfathered” in over time.

These points must be communicated to workers as part of the vision and the long-term prospects in the new business. One issue that can come back to haunt a merger or acquisition is the question of exempt vs. non-exempt classification of employees. These issues abound, with lots of legal questions at stake. Exempt employees, such as management who receives salaries regardless of the number of hours worked, must be treated differently than non-exempt employees who should be paid overtime when working more than 40 hours per week. The seller and buyer need to address these issues. Perhaps some of the seller's employees aren't non-exempt because benefits are better, or maybe the boss did not want to pay overtime and classified the workers as exempt.

Who's Responsible for What?

In cases where sellers have some vulnerability, purchasers have the responsibility to set things up on a “go-forward” basis, re-classifying jobs correctly as of the closing.

Retirement issues for the seller's company also have to be carefully resolved. An existing pension plan probably will be terminated so funds can be transferred to the new company's plan. The seller's plan administration needs to be up to date.

And then there are the painful times when all of a seller's staff will not be merged with that of the buyer's. In those instances, sellers should keep documentation – hopefully using performance records – to show decisions were made as fairly and objectively as possible. This becomes a factor when there are multiple individuals in both companies qualified for the same positions. Not only does it protect the seller and buyer, but also it helps the employees by allowing them to use the material as part of a recommendation when searching for other jobs.