There are eight drivers we assess when valuing a business for mergers & acquisitions purposes.
One of the most important intangible assets that drive value is the human capital, or the leadership and people that create the revenue for a business.
Unfortunately, our current economy has been aptly dubbed the Great Resignation and the majority of business owners are now struggling to identify talent. Then once they do hire the right people, they worry about losing them.
A high turnover rate will not only cost a business owner’s bottom line dearly now, but also negatively impact the attractiveness of a business when the owner tries to sell.
So, in light of this Great Resignation, here are three strategies to hire, train, and retain employees.
I’ll also highlight one strategy that we don’t recommend—giving equity to an employee!
1. Identify Talent: Get the right people in the right seats on the bus
Identifying talent is by far the biggest challenge for business owners. This hurdle is present across all industries and with the baby boomers retiring in droves, this threat is not going away any time soon.
Businesses are rapidly expanding by taking advantage of the ease of identifying top talent on an international basis, thanks to remote work policies that have broken geographic barriers. There are many resources and Upwork is one to put on your list.
Hiring the people who have demonstrated commitment in their prior work history that fit your corporate culture is key to employee retention and the financial success of a business. The longer an employee is with a company, the more productive they become and this always benefits the bottom line.
If you are struggling to identify the talent that fits your culture and placing them in the right roles, consider using the DiSC® assessment tool. We have found the DiSC® model to be a great guide to assess potential hires and ensure team members are correctly aligned with their role in the business.
High quality human capital de-risks a business, which always translates into a higher premium paid when we sell a business.
2. Train Employees: Increased skills elevates performance
Invest in your employees by providing opportunities for career and personal development. Proper training always increases productivity and employees who feel valued by a company that invests in their personal and professional growth will stay with a business longer.
Training in conjunction with a clear path of advancement fosters employee engagement resulting in a higher retention rate.
Competition for quality employees has never been higher and we are seeing “acqui-hiring” deals where an investor is purchasing a company solely for the employees.
The price received when the company sells will be driven by high quality employees and a low turnover rate.
3. Retain Your People: Offer competitive compensation and benefits
Flexible work options and the ability to source globally has stiffened the competition for small to mid-size businesses that now find themselves competing with larger companies who can afford better compensation packages. People who are seeking to move up the ladder no longer have to relocate for their next step, which has also tightened competition.
Consistently review compensation to ensure your business is as competitive as possible and is equitable throughout the company. In addition to salary and typical benefits explore tax deferral strategies for key employees, such as a Nonqualified Deferred Compensation (NQDC) plan.
Should you give stock as a reward and retention policy for key employees that drive growth?
While offering stocks to employees has been a staple in the technology industry to attract talent, we don’t recommend you give equity positions to employees in a privately held business. The more owners who have a seat at the table the harder it can be to sell the business. And when the stock is sold the employee’s shares may be taxed at ordinary income tax rates while the business owner’s could be taxed at capital gain rates depending on the structure of the deal. (How to Mitigate Taxes) The employee may then ask for the tax to be equalized in the deal creating another tax hit to the owner.
We recommend phantom stock as an alternative to equity positions to reward and retain employees.