Looking to sell, list or merge your business? Your HR strategy – or lack thereof – can make a big difference to your value.
If you’re selling, merging or listing your business, your current human resources strategy will play some part in determining how exactly how much it’s worth. From nailing down your policies to making sure your remuneration policies are transparent, we look at everything you need to know about using HR to maximise your sale price.
What a buyer wants from your human resources: certainty
Almost all potential buyers will want to know as much as possible about the human resources practices business they’re acquiring: where the opportunities lie, what liabilities they face and where there might be potential risks. And, when it comes to HR, there’s a lot to take into account – payroll, processes, potential claims, awards, agreements and more.
The first step in maximising your business’s value is to understand what you’re dealing with in the first place. And the only way you can really do that is to carry out your own HR audit or health check.
To do this, you’ll need to examine all people-related parts of your business, including:
- Policies and procedures
- Remuneration and benefits
- Your history of legal claims and employee relations
- Any Awards and Agreements that apply
- Training and staff development.
In short, take the magnifying glass to every one of your human resources policies and processes from hiring to firing and everything in between.
Document what you can
Chances are you’ll find that what you’re dealing with isn’t as exact as you’d thought and there may be some degree of uncertainty. For instance, your policies may not be documented or formal but may have simply come about organically. Perhaps your leave isn’t being recorded properly or performance reviews aren’t being carried out systematically.
Well now is the time to change all of that and to nail everything down in writing.
For instance, if you have no flexible working or leave policy or if you don’t have employment contracts for your managers – address that immediately. If your employees are Award-covered make sure you know what you’re dealing with (the Fair Work Ombudsman can help here).
This is the time to tidy up your processes and make sure they’re documented for the world to see. (Just make sure they also reflect reality.)
Look for any non-compliance
Now that you know what you’re dealing with, part of maximising your value means working out if you’re getting anything wrong. For example, are your policies and procedures at least in line with the National Employment Standards? Are you not complying with an award that applies to some of your workers? Are you failing making the correct super contributions? If so, you’re not just shortchanging your most important people you’re also opening yourself up to exposure to a claim.
Any buyer carrying out their own due diligence on business will uncover this and adjust their price accordingly. Too much potential exposure may even lead them to pull out altogether.
Look for anything that stands out
It’s not just your risk of a claim that a potential buyer will look for, they’ll also be looking at what’s on your books – particularly when it comes to money. For instance, are you paying way over award rates to your workers? Do any of your executives have golden handshakes or golden parachutes written into their contracts?
You can be sure any serious buyer will notice this and downgrade what they’ll pay accordingly.
If employees have masses of leave banked up they’ll probably mark your business down for this too. So if you’re in this boat do what you can to have staff take leave now, if possible.
In fact, if employees aren’t taking leave this could serve as a warning to any potential purchaser, showing that you’re reliant on existing staff and that no one can step in to do their job while they’re away. The more “turnkey” a business is, and the less it relies on key personnel, the more valuable it is also.
Look for savings
Put simply, the less money going out of a business the more profit there will be. And the more profit there is, the more that business will be worth. That means part of priming your HR strategy for sale is also looking for savings.
A lot of businesses are affected by duplication, especially when it comes to administrative roles. This can be amplified in a merger situation, where two back offices will need to come together.
If you need to get your house in order, now is the time for a restructure. If that sounds harsh, remember this – if it doesn’t happen now, it will almost certainly happen on acquisition. When it does, your staff will be dealt with on someone else’s terms, not yours.
So get in first and do it correctly and fairly.
Put your business in the driver’s seat
Finally, when two businesses come together through a merger or acquisition, they rarely come together as equals. It’s also worth remembering that every business only needs one set of HR policies and procedures. Part of making your business valuable (and making sure your staff stay happy) means also making sure your HR practices and strategy are the ones that prevail.
The only way you can do this is by going into any merger, sale or listing with strong, clear and transparent human resources policies and procedures. Without them, your business will be swallowed and consumed rather than seen as something valuable that should be preserved and enhanced.
We can help
If you’re looking to sell, list or merge your business, then speak with us first. At Catalina Consultants, we can assist you in making sure that your HR strategy is up to scratch. Speak with us today.