As we have discussed before employees’ welfare is of great importance to employers, and concern for what will happen to their workers following the sale of a business remains at the top of sellers’ priorities. Seventy percent of owners stated that employee welfare was a top concern in a 2017 Market Pulse report, in fact. Obviously any buyer is also invested in matters relating to employees – but his interests will be different. How do buyers view a company’s employees then, when it comes to evaluating the health of that business? In this blog we will examine buyer scrutiny of human resource issues.
Twenty years ago, human resources and employee benefits packages were more straightforward, but regulation, escalating healthcare costs and economic fluctuations have changed this. Immigration – both legal and illegal – has also made an enormous impact as well. The following issues affect the bottom line of a company’s profitability, so any seller should be prepared to field questions about them:
Health insurance – The healthcare market has been in flux for years now with costs rising for a number of reasons, including federally-mandated insurance and an aging population. Much uncertainty remains about the cost of healthcare in the future and the affordability of plans. Business owners have navigated these issues in various ways. A buyer will want to know what the company spends on healthcare insurance for employees currently, how the Patient Protection and Affordable Care Act (Obamacare) affected this spending, and when the business last renewed its insurance. Essentially a buyer will want to know if the current benefits package will remain roughly the same cost-wise, or if there are large increases expected down the line.
Other benefits – Many companies have drastically decreased their employee benefits packages in recent years, but any buyer will want to know what other benefits the employees enjoy, including vacation, other types of insurance, and pension plans or contributions to retirement savings packages. Also of interest will be how the company’s workers have reacted to changes in benefits packages and if employee morale is currently high (or low) as a result.
Documentation – In the current climate, the legal status of all workers is a much more serious issue with federal scrutiny of I-9 employment eligibility forms becoming more intense. A buyer will want to know how well employee records have been maintained and if there are processes in place for complying with federal law regarding documentation.
Minimum wage laws – Some municipalities have passed minimum wage laws increasing what employers must pay their workers. If the company employs minimum wage workers, any potential buyer will want to know what the resulting burden will be if any new wage legislation is threatening.
A successful company is much more than its physical plant or products and services. A knowledgeable, well trained and well functioning staff with high morale is a huge asset in any sale, so any buyer will be interested in the company’s human resources. A seller who takes the time to ensure that a prospective buyer has an understanding of how these issues affect the business at present and moving forward will go a long way towards heading off buyer concerns and brokering a sale.