01.16.2013

Startups Planning an Exit: Look for Skeletons in the HR Closet

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Acquiring companies say the problem always lies in the HR files.
Acquiring companies say the problem always lies in the HR files.

Startups, what’s your exit strategy? You created this cool thingamajig, wowed them in pitch competitions, got your customers and now it looks like somebody might buy your company or you’re ready for an Initial Public Offering. You know you have to have all your financial ducks in a row…but did you know you also have to have your HR ducks in a row?

Anyone interested in buying  a company, or a company’s stock, wants to know that the company is a safe bet, without a lot of potential HR liabilities:  If you’ve made verbal promises to employees they’ll have to make good on, if you have Equal Employment Opportunity Commission claims, high turnover that means the company is rocky, missing paperwork that might lead to back pay or lawsuits.

We’ve seen it all.

The great thing about startups is they’re filled with brilliant people who think outside the box. The problem is, when it comes to business regulations like how you conduct your HR, it has to fit inside the box for your company to function successfully in the business world. Every private equity guy I talk to says the same thing: The hitch is always in the employee files—meaning not literally the files but the HR practices or lack thereof.

So it’s time to think about your HR.  What little surprises might turn up when someone starts looking at your employee files?

  • Have you given employees a handbook that covers all the legal bases?
  • Are your job descriptions accurate and nondiscriminatory?
  • Is your compensation plan fair and accurate or have you made promises about company ownership that a purchasing company is going to have to make good on?
  • Are your contractors really contractors and your employees really employees? How do you differentiate?
  • How many times have you had to hire an employment attorney to protect against issues like harassment, discrimination or unemployment claims?
  • Have you filed all the necessary paperwork on each employee, especially people who aren’t U.S. citizens?
  • How much turnover have you experienced? What is an acquiring company going to have to do to keep trained employees at the company?
  • How many severance agreements do you have in place?

If you’re planning an exit strategy, you’d be wise to hire an HR firm to audit your employee files to make sure everything’s in place and nothing’s going to jump up and bite you when an acquirer wants to get a look at your files. We’ve seen this, lots.

We work with companies on a project basis or on retainer, providing a custom level of HR help designed for your business. Contact me at Caroline@valentinehr.com or call (512) 420-8267.

 

 

We work with companies on a project basis or on retainer, providing a custom level of HR help designed for your business, with offices in Austin, San Antonio, Dallas and Houston. Contact me at Caroline@valentinehr.com or call (512) 420-8267.