Employee Retention Matters Before Selling a Business

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Employee Retention Matters Before Selling a Business

From 9/11 to the Great Recession to COVID-19 – after every hiccup in the world, buyers want to know how your business stood up against adversity. In 2015, buyers were still asking, “But how’d they do in 2009?” Today, buyers want to know how you’re getting through the global talent shortage.

Data from the Labor Department continue to show there are roughly two job openings for every unemployed person in the U.S. Meanwhile, 44% of employees are “job seekers” who are actively looking for new work or plan to soon, according to a Willis Towers Watson survey. It’s no surprise that other employers are out there looking for people to poach.

If you’re thinking about selling your business in the near future, it’s important, now more than ever, to focus on retaining your talent. That means making sure compensation is at or above market rate. More importantly, it means spending time with your employees and building a great culture.

As owners, we have to carve out more time to build connection. If you can keep your team together, you’ll have a better company and a proven group when it comes time to sell. You need to invest money into your people, just like you invest in your equipment and fleet.

Buyers are looking at turnover and retention trends. If you’re constantly in hiring mode to replace departing talent, buyers will see that as an element of risk. On the other hand, a well-tenured team can increase your business value in today’s market.

Business owners without strong leadership teams may need to consider extended transition periods to secure a successful deal. We’re representing one professional services firm, and buyers told us, “The only way we’ll do the deal is if the owner stays for three years.”

The good news is that the seller understood that transition issues would be a stumbling block in this talent market, and he came to the table prepared for a five-year plan. However, many business owners want to be out in 3-6 months, which can prove to be a real problem.

Business owners with strong leadership teams won’t need to stick around as long. In fact, a sale can be an integral part of succession planning. In deals involving private equity, we’re seeing a considerable number of buyers who are setting aside anywhere from 8-12% of the company into an incentive pool for executive non-owners.

Your management team can become minority owners of the business, through the transition. Buyers are willing to give up a percentage of the company to create those “golden handcuffs” and keep proven leaders.

Employee retention is important at any stage of business. But for owners contemplating a sale, a strong record of retention could mean significantly more value and a faster transition period.

By Scott Bushkie

Scott Bushkie Managing Partner, Founder, CBI, M&AMI, Fellow of the IBBA.

With more than 20 years in the Mergers and Acquisitions (M&A) industry, Scott is a recognized leader in the field, providing exit strategies, business valuations, and M&A advisory services to business owners in the lower middle market. He has successfully executed sales to domestic and international buyers, private equity firms, family offices, and strategic buyers. Follow DealCoach on Linkedin

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