Many new businesses are today started by entrepreneurs whose main aim is to exit the business successfully in a few years’ time. Sound familiar? All too often the daily focus is running the business and making it profitable, and the thing that is left on the back burner is the exit strategy. So what can you be doing to be preparing for exit?
However, if it really is your plan to exit in a few years’ time, we recommend you remember that the decisions you make in these early years can have huge implications down the road when you come to sell. And, unfortunately, it’s not enough to simply have a profitable business when the time comes; you must have an exit strategy and a way to get the most from the sale.
Whether you are preparing for exit by merger, acquisition, IPO or even just selling to a friendly buyer your staff are a huge asset and if you dot the HR i’s now it will pay huge dividends in the future.
Here are 3 HR questions that recruitment businesses who are looking to sell should consider:
1. Have you built maximum value into your team?
Look at how you can add value through a strong management and/or sales team. If you leave when you sell your business can the current team function successfully without you? The acquiring body will need to be assured of this and it is tremendously valuable.
It’s therefore a good idea to undertake some succession planning now. Ensure that you have strong team members in the right roles so that all day to day activities and general management of those activities don’t necessarily involve you.
2. Have you got robust restrictive covenants?
First off it’s crucial to ensure all your staff have up-to-date employment contracts and those contracts should have robust restrictive covenants. This ensures you have protected your business against top talent leaving your business, taking your contacts and clients and setting-up on their own.
You may think that it’s premature to think about this stuff now, but when you come to sell, a change of ownership can make even the most loyal staff nervous. We recommend reviewing the contracts of your top performers regularly to ensure you retain them whilst at the same time protecting your business. An acquiring party will attribute very real value to a business with this protection in place.
3. Have you done your HR due diligence?
When selling your business you should make sure that there are no unresolved employee disputes, and that you can demonstrate that you have organised and effective HR processes in place. So that all starts now. Running a business that has clear employment policies and having happy staff who know exactly where they stand will mean that when it comes to exit the transition will be as pain-free as possible.
On exit you will more than likely be asked to provide a complete set of HR data to demonstrate the employment liability being transferred to the buyer. We recommend keeping your employment files in an easily accessible, secure format such as using HR software. This enables you to regularly update the files and provide immediate access to a buyer.
It’s also worth noting that if the business entity is changing, i.e merging with another company there could be a formal transfer of undertakings, which will mean you have to go through a set legal process, including consulting with staff about their employment. All of this is made much more clean and simple with organised documents and up-to-date policies and practices.
At citrus HR we specialise in helping small businesses with their HR processes and policies. So if you’re preparing for exit anytime soon and you need some advice feel free to get in touch with one of our qualified HR consultants on 0333 014 3888 or get in touch here.
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