As enterprises have flattened and deconstructed their hierarchies, jobs and paths within companies may have become obscure. In some businesses, particularly smaller ones, much of this never was formalized. Documenting the human element now, however, becomes important when you prepare to sell. Potential buyers will ask for human resources materials when appraising your business and its people as assets in a purchase.

Job Descriptions

Create job descriptions if none exist. They should be clear, detailed and relevant. Employees’ performance goals should be simple, measurable, customer driven, and easily understood. Update performance evaluations and personnel files. Evaluate every position for outsourcing, automation, or elimination. Documented career paths should show logical transition points to move up, down, and laterally within your organization.

Organizational Structure

Review your organization structure and whether it effectively supports your company’s mission and goals. Are management structures and staffing as they should be, especially considering an upcoming sale? Where does authority reside, and does it address current needs and effectiveness? Are all of the dotted line relationships documented?

Undertake a structural review of job positions, work groups, and departments. Decide which might be removed or added. For a smaller company, adding managers between you and the employees may make the business more transferrable and therefore more valuable.

What industry benchmarks are valid comparisons? Could some employees be more effective in another position or with an investment in training? Which employees have a questionable future with the firm? It’s important that you deal with these issues before selling a business.

Compensation and Morale

Some buyers want to ascertain that employees are competitively compensated through salary, benefits, and incentives, whether they comply with rules and regulations, and are well trained. All employee contracts need reviewing, including commission agreements, severance packages, and non-compete arrangements, to see if they are in compliance, and to have them ready for the buyer. Also, you need to document employees’ terms, conditions, and entitlement payouts.

There are many ways to take care of your employees when you sell a company. Consider offering critical employees employment contracts, including “stay put” clauses for essential managers. You have to determine which employees are crucial to your business and anticipate their reaction to your sale. Incentives such as bonuses or guaranteed employment for a period after sale might encourage them to stay with the business.

Aside from key employees, are all employees generally satisfied? Higher than  industry average employee turnover can warn off potential buyers, so rectify its causes before your business appears on the market. We have seen the source of unrest surface in many different ways, from culture, to compensation, to safety issues. This can be a long-term effort to uncover and fix, and we recommend bringing in unbiased, trained experts to assist.

As a business owner, taking care of your employees and preventing layoffs may be a driving consideration for the sale. You should specifically target buyers that offer the least chance of that happening.

As painful as it is, in some instances layoffs will happen. Prior to entering into the sales process, you can put severance policies and packages in place. These may not survive the negotiation phase, but will set the bar to where you want it. In the Letter of Intent, you can describe how layoffs will be handled, provide severance pay and benefits continuation, and lay out whether you or the buyer are responsible for them. You can also negotiate with a buyer assistance for displaced employees. This could include help in finding new jobs by contacting state agencies or private firms to assist in outplacement.

Union Agreements

Potential buyers will ask when pertinent union contracts expire and whether negotiations are under way. You should examine contract requirements that might disrupt a sale and plan accordingly. Potential buyers will decide if changes are needed and whether that alters how they value your business. Understanding the situation does not itself take time, but dealing with what you uncover may. Be sure to consult competent labor counsel on these matters.  Interpretation of labor contracts is complex.

Document The People Assets

Documentation is never a pleasant task.  If you haven’t done it, now is the time.  Any serious buyer will want to understand the role and value of those people you have worked with to build the business.  When selling a company, documenting the people assets will increase your business valuation.

I invite you to use these ideas as you start the journey to sell a business.

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