HWhen embarking on the journey of acquiring an established business, the evaluation of existing employees is not merely a task to be checked off your to-do list. It is a pivotal step that ensures a seamless transition and sets the stage for long-term success. Employees, as the backbone of any business, play a crucial role in its operations. Understanding their capabilities, morale, and fit within the new ownership structure is of utmost importance. This article is a guide for evaluating employees before and after buying a business, regardless of whether you’re acquiring a large corporation, a mid-size commercial enterprise, or a small, family-owned business.
Pre-Sale Considerations
It’s important to begin employee assessment before signing the final sale documents. You will be acquiring far more than finances or products when you buy a business and employee assessments are an important aspect of a smooth ownership transition.
Due Diligence Phase
The due diligence phase, one of the initial steps in the acquisition process, is of utmost importance as it provides a comprehensive understanding of the workforce you are inheriting. This phase entails a detailed review of all aspects of the business, including employee-related factors.
Key Steps:
1. Evaluate Employee Contracts and Agreements: Scrutinize employment contracts to understand terms of employment, non-compete clauses, and severance agreements. Be sure to identify any union agreements or collective bargaining agreements that may affect operations.
2. Review Human Resources (HR) Policies and Employee Benefits: Examine the company’s HR policies, including hiring, training, and disciplinary procedures. Assess employee benefits, such as health insurance, retirement plans, and paid leave, to ensure they align with industry standards and your business philosophy.
3. Analyze Workforce Demographics and Turnover Rates: Study the workforce demographics, including age, gender, and tenure, to identify potential challenges or areas for improvement. While high turnover rates indicate potential issues, they also present an opportunity for growth and improvement. They can be a sign of underlying issues with management, work environment, or job satisfaction that, once addressed, can lead to a more productive and satisfied workforce.
4. Conduct Confidential Interviews with Key Personnel: Engage in confidential discussions with key employees to gain insights into the company culture, operational challenges, and employee morale.
In the due diligence phase, most workforce evaluation basics are the same regardless of business size. However, once the general evaluations have been completed, it’s essential to consider some added nuances. These nuances should be tailored to the size and type of business you’re acquiring, ensuring that the evaluation approach is not only comprehensive but also specific to the unique needs and challenges of the business.
Large Business Acquisitions
When acquiring a large corporation, the scale and complexity of the workforce require a more structured approach.
First, you’ll want to assess all leadership teams and identify the key executives to evaluate their performance and potential. This group is crucial for maintaining stability and driving future growth; you want to ensure they are well-placed and satisfied and would be ready to assist with smoothing out any bumps in the acquisition process.
You’ll next want to investigate any specialized skill sets and departments vital to the company’s operations. Ensure these areas are well-staffed, able to communicate effectively, and capable of supporting the business’s strategic goals.
It’s also important to ensure compliance with regulatory and industry standards and verify that the business complies with relevant labor laws, industry regulations, and safety standards.
Mid-Size Business Acquisitions
Acquiring a mid-size business involves creating a more manageable yet significant workforce.
With a mid-sized business, it’s crucial to fully understand the company’s organizational structure. One way to do this is to review the organizational chart and make sure you understand reporting lines, departmental responsibilities, and potential overlaps or gaps.
It’s also a good idea to evaluate employee roles, assess the clarity of job descriptions, and determine whether employees have the necessary skills and training to perform their roles effectively. Along with that, you’ll want to analyze how employees interact with customers and manage client relationships. Strong customer service is often a key differentiator for mid-size businesses.
Last but not least, be sure to assess employee satisfaction and morale. By distributing surveys or gathering small focus groups to gauge employee satisfaction, you can identify any areas of concern and quickly work to remedy issues.
Small Business Acquisitions
Buying a small, family-owned business involves understanding a close-knit team and unique dynamics.
In small business situations, it’s paramount to identify pivotal employees whose departure could disrupt operations. Understand these employees’ roles and the value they add to the business. Be prepared to communicate clearly, frequently, and openly with them in the post-acquisition phase.
Small businesses often rely on employees who can perform multiple roles. Ensure there is adequate cross-training to prevent operational bottlenecks and be on the lookout for signs of burnout or underlying resentment.
When acquiring a family-owned business, personal relationships can significantly impact business operations. Carefully evaluate various existing personal relationships so you can be sensitive to those dynamics and plan accordingly.
Finally, plan to take as much time and use as many tools as possible to define, understand, and relate to the local community and customer base. Small businesses often have deep ties to their local community, and you will need to maintain the existing ties while forming and nurturing new ties that are unique to you and your style. The goals will be to avoid alienating employees and sustain customer loyalty.
Post-Sale Considerations
The time immediately following the acquisition is critical for integrating employees and setting the stage for future success.
First Few Months Post-Acquisition
Effective communication and relationship-building are essential during the initial months post-acquisition. As a business owner, your primary responsibilities for employee evaluation (and follow-up communication) include transparency, building trust, and dedicating yourself to one-on-one meetings.
1. Communicate and Be Transparent with Employees: Clearly communicate the vision, goals, and changes that will occur. Transparency builds trust and reduces uncertainty.
2. Build Relationships: Spend time with employees at all levels to understand their concerns, aspirations, and ideas. Building personal connections fosters loyalty and cooperation.
3. Introduce New Policies and Changes Gradually: Implement changes incrementally to allow employees to adjust. Big, sweeping changes that seem to come suddenly only lead to resistance and anxiety.
4. Conduct One-On-One Meetings with Key Personnel: Schedule individual meetings with key employees to discuss their roles, expectations, and any support they may need during the transition.
Large Business Acquisitions
Post-acquisition integration in large corporations involves aligning new management and maintaining operational efficiency. Be sure to implement a comprehensive onboarding process for new management and ensure all new managers understand the company’s culture, methods, and strategic goals.
A significant part of the post-sale phase is setting clear expectations and achievable goals for employees so you can evaluate different aspects of motivation, drive, and cooperation between individuals and departments. Keep track of how well your team works together to meet performance targets and be prepared to step in to provide direction and motivation if you sense confusion or reluctance.
It will be up to you to continuously monitor employee performance and make any necessary adjustments. Establish a method and pattern for regularly reviewing performance data and employee feedback to identify areas for improvement and implement corrective actions as needed. Don’t forget to encourage teamwork and the sharing of ideas to drive innovation and continuous improvement.
Mid-Size Business Acquisitions
Efforts in evaluating mid-size businesses after an acquisition should focus on optimizing organizational structure and enhancing employee engagement.
Once the ink has dried and you’ve noted observations from your pre-sale evaluation, you can go ahead and realign organizational structure (if needed) to improve efficiency and clarify roles. Be aware that in many cases, it will not be necessary to do any realignment, and trying to “fix what isn’t broken” can lead to mistrust, worsening performance, and communication fallout.
Regardless of realignment or restructuring goals, you should plan to provide training and development opportunities early on to enhance skills, boost morale, and retain top talent. Also, make sure you create channels for employees to voice their opinions and provide feedback so that ongoing evaluation is inclusive and timely.
As your evaluations continue over time, it’s a good idea to implement recognition programs to acknowledge and reward employees who exceed expectations. Recognition boosts morale and motivates others.
Small Business Acquisitions
For small businesses, maintaining the unique culture and ensuring a smooth transition are paramount.
Maintain the business’ unique culture and respect its established values. Drastic changes can alienate loyal employees, drastically lower morale, and negatively impact your customer base.
Let employees know that their input is valuable and maintain a collaborative mindset. Be prepared to address personal dynamics sensitively and at the first sign of any distress, take the time to have a genuine conversation and address concerns or needs in a timely manner.
Finally, prioritize customer continuity by ensuring that employees who interact with customers are well-supported, informed, and meeting your customer service goals.
What if Your Evaluation Results Aren’t Positive?
Typically, employees who remain during a significant transition, like a merger or acquisition, are those who care about their role, the field, the company, or the impact they have on their community and customers. That means that many of your pre- and post-sale evaluations will primarily be positive, with any required changes being minimal and mostly related to any emerging restructuring needs. However, there’s always a chance that you will encounter a less than favorable employee evaluation — either an employee who doesn’t meet your evaluative standards or presents a potential issue to productivity and communication.
In those cases, it’s essential to approach the situation with a balanced combination of empathy and professionalism. Begin by scheduling a private meeting with the employee to discuss concerns. Clearly outline specific areas where their performance is lacking and provide concrete examples to support your observations. It’s crucial to maintain a respectful tone and focus on the behavior without making it personal. Keep this initial meeting focused on explaining and understanding any underlying reasons for the performance issues, gaps, or challenges.
After identifying root causes, collaborate with the employee to develop a tailored improvement plan that includes precise, achievable goals, a timeline for progress, and regular check-ins to monitor their development. Be sure you’ve provided all the necessary resources and mentorship to support their growth. Also be sure to document all interactions and the agreed-upon plan to maintain accountability. If, after a reasonable and defined period, there is no significant improvement, be prepared to explore other options such as reassignment or, if necessary, termination.
By handling the situation with a structured and compassionate approach, you can address performance issues effectively while maintaining a positive workplace culture.
Conclusion
Evaluating employees before and after acquiring a business is a complex but crucial process. Tailoring your approach to the size and type of business can help you effectively assess the workforce and implement strategies for successful integration. Whether you are acquiring a large corporation, a mid-size enterprise, or a small, family-owned business, it’s essential to understand and support your employees to achieve long-term success. Prioritize transparency, communication, and employee well-being to build a strong foundation for the future.