When it comes to selling your business, there’s a crucial factor that often flies under the radar but can make or break a deal: employee retention. Let’s dive into why keeping your key team members on board is so vital during this transition and how it can significantly impact your business’s value and attractiveness to potential buyers.
Why Employee Retention Matters in Business Sales
Think of your employees as the backbone of your company. They’re not just names on a payroll; they’re the collective knowledge, skills, and relationships that keep your business running smoothly. When you’re looking to sell, potential buyers aren’t just interested in your assets or customer base – they’re keenly aware of the human capital that comes with the purchase.
Impact on Business Valuation
Here’s a sobering thought: the stability of your workforce can directly affect your business’s value. Experienced and senior management can add significant worth to your company[1]. If key employees start jumping ship during the sale process, it can lead to a decrease in productivity, loss of critical business knowledge, and potentially a drop in the overall value of your business.
Buyer Concerns and Continuity
Put yourself in a buyer’s shoes for a moment. They’re not just acquiring a company; they’re investing in its future potential. A stable workforce signals continuity and reduces the perceived risk of the investment[2]. If there’s a chance that key employees might leave after the sale, it could deter potential buyers or lead to a lower sale price.
Strategies for Retaining Key Employees During a Sale
So, how can you keep your star players on board during this critical time? Here are some effective strategies:
1. Implement Stay Bonus Agreements: Offer financial incentives for key employees to stay through the sales process and for a period after closing[5]. This not only motivates them to stick around but also aligns their goals with the success of the sale.
2. Introduce Phantom Stock Agreements: These plans give key employees many advantages of owning stock without actually giving them company shares, often contingent upon a business sale[3].
3. Offer Competitive Compensation: Consider paying key employees about 20% above the current market rate[1]. This shows appreciation for their contribution and makes it less tempting to look elsewhere.
4. Focus on Employee Satisfaction: Regularly track employee satisfaction and address concerns promptly. Happy employees are more likely to stay, contributing to the stability of the business[1].
5. Communicate Openly: While you may not be able to disclose all details of the sale, keeping key employees in the loop can prevent them from feeling blindsided and potentially quitting[3].
The Long-Term Benefits
Investing in employee retention isn’t just about securing a smooth sale; it’s about building a stronger, more valuable business overall. Companies that excel in employee engagement report a 21% increase in productivity and a 22% rise in profitability[6]. This not only makes your business more attractive to potential buyers but also ensures its continued success post-sale.
Remember, your employees are more than just assets – they’re the heart of your company. By prioritizing their retention during the sales process, you’re not only increasing your business’s value but also ensuring its legacy continues long after you’ve handed over the keys.
In the end, a strong employee retention strategy can be the difference between a good deal and a great one. It’s an investment in your business’s future that pays dividends, whether you’re selling or not. Discuss your business with an Advisor by emailing us at in**@************rs.com.
Citations:
[1] https://www.growandexityourbusiness.com.au/the-crucial-role-of-staff-retention-in-business-valuation-and-sale/
[2] https://www.confederationgroup.ca/importance-of-employee-retention-and-the-sale-of-your-business/
[3] https://www.bizbuysell.com/learning-center/article/retaining-key-employees-is-critical-to-selling-your-business/
[4] https://n3business.com/investing-in-employee-retention-to-boost-business-value/
[5] https://touchstoneadvisors.com/how-to-retain-key-employees-when-selling-your-business
[6] https://sparkplug.app/blog/why-successful-businesses-prioritize-employee-retention
[7] https://www.netsuite.com/portal/resource/articles/human-resources/employee-retention-benefits.shtml
[8] https://www.beqom.com/blog/understanding-the-importance-of-employee-retention