November 19, 2019
How to get your HR policies ready for your business sale
Thinking of selling your business? Your Human Resources (HR) policies, processes and practices are all likely to have an impact on the price you receive.
We explore what you need to do to get your business HR ready for sale so that you secure top dollar when it comes time to sell.
1. Have the right HR policies in place
First and foremost, any potential buyer will usually want to know how your business functions from an HR perspective. Even more importantly, that your HR policies will continue to function when the buyer takes over. They’ll also want to know that you have established HR customs and procedures that don’t conflict too much with their own.
This means always taking the time to document and write down your HR policies and procedures before your business goes to market. This means everything from employee leave and flexible working hours through to termination and redundancy.
2. Understand your HR liabilities
The other key concern most buyers will have is your HR liabilities. They’ll usually go through a due diligence process to uncover these (or at least their lawyers will). When they do, they’ll notice things like “golden parachutes” for managers, massive redundancy entitlements, large looming bonuses and, most importantly, excessive leave liabilities.
To get the best price, you’ll need to keep these to a minimum. If a member of staff has accrued more than eight weeks’ annual leave, you may be within your rights to ask them to use some of it. You should also be prudent when it comes to agreeing on severance terms with senior staff.
3. Do what you can to retain key staff
One of the most challenging things to do will be convincing your employees to stay on after the sale. Some buyers will stipulate as a condition of sale that your key employees stay. This is especially true of any businesses that rely specifically on the skill of the staff to make money (ie professional services), as well as for relationships-based businesses.
Key employee retention is also important when the sale doesn’t involve a merger or acquisition by a similar business. That’s because the buyer won’t have existing employees to take over that workload.
Losing key staff in the run-up to a sale is also likely to diminish your business’s value. Reassuring them about their value is obviously a start, but sometimes it takes offering them incentives for them to stay. You may find you need to offer loyalty bonuses in this regard.
4. Keep up employee morale
A buyer is able to see a workplace with poor employee morale or a toxic workplace culture. They will notice workers who are disengaged and productivity that is slipping. To get the best value of your sale, you need to prevent this from happening. That involves communication.
It’s only natural employees will be worried, and let’s face it, perhaps some staff have every right to be. But you also need to let employees know the positives that new owners will bring. Will there be increased opportunities? A new direction? The chance to play out on a bigger stage? Just be sure that you’re realistic about what the future brings as promising the world is likely to have the reverse effect.
Also, keep your door open and let people come to you with their fears. Staying open and honest is vital.
5. Make sure you’re compliant
Finally, one of the main HR-related exposures any business buyer can face is inheriting non-compliance with a law, regulation, award or agreement. Here, it’s your responsibility to make sure the buyer won’t uncover any major surprises in their due diligence.
The way to do that is to audit your HR policies and practices. You need to find out where your exposures lie. Then you can make them right and make an educated decision on how to best approach things.
Uncovering a major breach of law can make a buyer nervous and leave them wondering what other exposures they may be facing.
Are your HR policies ready for sale?
Selling a business can be a long and drawn-out process. Any serious buyer is going to take time going through every detail to make certain they know what they’re buying. By identifying and correcting any HR-related issues, you’ll be in a much stronger negotiating position and more likely to get the best price.
If you’d like to get your business and HR policies ready for sale, speak to the Catalina Consultants team.