So I have been in touch with a prof for a few months about being a postdoc in his group. He promised (verbally) one year of funding saying he was not sure if his grant proposal for my second year of funding would be successful. After being in touch with him over six months, he let me know that he the proposal has been successful and he now has funding for my second year. In the mean time, my opinion about being a postdoc and going the academic route have changed quite a bit due to family and other personal circumstances and I want to move into the industry [I have an offer in hand too]. My question is, how bad would it be, in terms of loss of face, if I said no to being a postdoc with the prof? I haven't signed a contract with him or anything and all communication between us has been informal. How do I even begin to explain things to him? I haven't even given a hint to him so far.
Since you haven't agreed to take the job, there's no damage being done at all. Being offered a job does not put you under any obligation to take it, in academia or otherwise. You shouldn't feel embarrassed or awkward. If you're sure about your decision, then it's helpful to tell the professor now.