with them; the risk is high that they could leave tomorrow, so hence a lower valuation is attributed. Likewise risk is the same with staff; if the company is reliant on you as an Owner, or one or two key staff members, then the concern will always be ‘what if they leave?’.
This is not just a concern from a valuation on exit viewpoint for SMEs. Alarmingly, a 2013 report by Scottish Widows found that over half of UK businesses (55%) believe they would cease trading if the company lost one or more of their key employees to illness or death.
Therefore whether you are planning to exit at some point in the future, or just merely want to safeguard your company going forward, assessing your staff and minimising dependency is crucial.
Owner Managers tend to be most guilty of failing to assess their company, and apportion work accordingly. Often this model leads to the Owner being the key person when it comes to running the company, meeting with clients, gaining new work and monitoring the financials. As a result, in the scenario where the Owner is unexpectedly out of action and unable to work, typically this results in the company stalling, or worse unravelling, meaning years of hard work can be lost in the space of a few months.
Owner Managers are often guilty of falling into the trap of believing that ‘no-one else can do the job as quickly or as good as me’. This may be right. However by coaching and training your staff over a period of time you will build up a reserve of experience, so if the unexpected happens, there is a skill base there to continue at an acceptable level short term. The other scenario, whereby you do not make time to train or educate, would result in the company unable to deliver to customers or clients, and ultimately failing. Training and educating your staff reduces risk, and is intrinsic to increasing perceived value.
As an Owner Manager letting go of the reins is hard – but unless you never plan on selling, or are foolish enough not to insure against the worst – it is a task necessary for growth. You would be amazed how many Owners have been in exactly the same situation as you and went through the sometimes painful process of stepping back, only to find out in the medium to long term that their staff were more capable than they had perceived.
Who knows, you might finally find the life outside of work that your family and friends always talk about!
Once you have taken a step back, and either have a management team in place or a couple of senior members, the next stage is gaining their commitment to the company in the long term. One of the reasons Owners are concerned about investing too much into their staff, is the threat of them leaving to work with a competitor, or to set up as a rival. Taking the time to understand the driving factors of your key staff is crucial to how you proceed, but there are options to reduce this risk. The first is to ensure that the key members who contribute the majority of the sales or are in management positions feel that their career and growth prospects lie with your company. This can mean external training, making them aware of the company’s plans for growth and indicating how they are part of this. In essence, making them feel valued. Being valued is one of the main aspects staff seek from their employers, consistently polling more than high wages in satisfaction surveys.
Other areas to be considered for senior members of the team include directorships, bonus schemes or the EMI scheme. The EMI scheme in particular works well, tying key staff to the company for up to ten years, with a financial incentive to remain and grow the value of the business, and to benefit on your exit. Additionally the EMI scheme would not require them to financially invest today, and can be implemented at a relatively low cost.
Assessing your company is the important first part of any journey in a business lifecycle – whether that be growth, consolidation or exit. Here at JDC we are experts in all areas of corporate advisory work, and a chat with us could ensure you set off on the right path.