Know When to Hold Them, When to Fold Them: HR and Employees

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After COGS (Cost of Goods Sold), employee compensation and benefits is most hosting firms largest expense category. Maximizing the value in the sale of a company is the Board’s and CEO’s goal and fiduciary responsibility. Each dollar that is shaved off your overall expenses could mean four to ten dollars in a sale. So after taking that hard look at network and colo costs the next step is employees and benefits.

Life spins around the Who, What, Why and Whens of this world, so lets make it easy:

Why: You want your company to run well on all levels. You may decide to add or cut costs. Why not run your company as well and make as much money before the sale as the buyer wants after the sale?

Who: Your buyer really wants good em- ployees, actually, they want great employees. A great employee may cost you more, but they are worth it in quality, attitude and efficiency. If you want to keep those great employees, it may take more money. A buyer will often see the value. It is hard to terminate an employee. However, do you think the buyer of your company will keep that person on? Prior to a sale you have some control over your employees destiny. Most of us have been that round peg in a square hole sometime during our careers.

When: Sometimes an owner decides to make HR changes just before coming to me to represent them in the sale. This can range from giving larger than normal salary increases to dropping headcount. Buyers look at this as a negative; it throws off your finan- cial statements and opens the question if the business can be run over the long term with 20 percent less employees. My recommendation is that you make HR changes at least six months prior to putting your company on the market.

What: Benefits. Your biggest concern is health insurance. As a general view of the hosting industry your employees are younger other industry sectors. Speaking to our US readers regarding The Affordable Care Act, all indications are this younger group will be affected with the greatest increase in insurance premiums. I can only assume, as there is little information at this writing, that eventually this will spill over to your group plans. Over the next few months I urge you to take a hard look at what you realistically can afford. Talk with your accountant, get bids, and attend local seminars.

Selling your company is not an event; it is a process.

Original post appeared in the Fall 2013 WHIR magazine, The Hiring Issue.

About the Author

My M&A firm has focused on the Hosting sector since 1997. I want you to fulfill your dreams. If you are building your company or exiting for success...I want help you grow rich. NCC has completed hundreds of assignments. We are international. If you are considering buying or selling in the hosting sector you need to know me. I do not bite.

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