Top 10 HR activities to Improve Your Company’s Valuation

When we think about valuations and due diligence, we always look to sales, productivity, margins, product market fit, growth, risk, but one very overlooked aspect of our business is our people AKA HR. Having your HR house in order is one of the most critical parts of business. For one, your employees and team are your most valuable asset. Let’s get the list started: 

NUMBER ONE is You. Yes, you who’s reading this blog. Get your own HR organized. Build a succession plan for yourself. Who will be doing the work if you were to step away from your business. If you are the key man for critical business functions, you need to learn to delegate these tasks. Key Man risks will not only destroy your valuation but could also ruin your ability to sell. Building a succession plan will help to identify areas of your business where you are the bottleneck and opportunites to fix you as the bottleneck. 

NUMBER TWO, ensure all of your employees’ legal documents are in order. Included here are employment agreements, separation agreements, privacy policies, harassment training, and your company’s vacation policy. When in doubt, hire a qualified Labor Attorney who can help you sort through the documents through what you have in place and gaps that need to be fixed. Even if you have employees working for you now that do not have an employment agreement, that doesn’t mean you can’t retroactively generate employment agreements for them. Lastly, make sure to store the policies and agreements in a central location that’s easy to find 

NUMBER THREE. Document your company benefits plans. First off, employee benefits add tremendous value to your business because to attract top talent, you need to have strong benefits. The stronger your employees, the more valuable your business. Do you give your employees medical, dental, 401k, life insurance? Even transit or FSA benefits? You need to make sure to document all benefits information. The good news is that most plans are administered through services like ADP or Gusto. It’s easy to call them and ask for your company’s benefits documents. Also important is to ask your plan administrator to detail both the employer and employee costs by employee and in aggregate.  

NUMBER FOUR, create an organizational chart. While you may not think an Org chart will add value to your business and it feels administrative, I beg to differ. Org charts do a lot of things. They help you think about how you organize your business and gaps. Org charts also show management span of control over direct reports. And, most importantly, Org charts are great to show roles and responsibilities. Most employees want clear organizational responsibilities. Org charts are also very helpful during due diligence. In fact, Org charts are of one of the first things a Buyer will ask for to understand how the business is constructed, number of employees, and names. 

NUMBER FIVE, create a job description for all employees. A well-constructed job description should be the combination of a written description of roles and responsibilities AND a RACI type diagram to show who is responsible for what across your company. A RACI diagram will clear up any confusion amongst your team about how is responsible for what tasks, which will in-turn increase your company’s efficiency. Additionally, when you progress through due diligence, the job descriptions will reduce countless hours of interviews and questions.  

NUMBER SIX, document salary history over time. Documenting salaries and bonuses is very helpful information to keep for the duration of each employee's tenure. The salary history paints a picture of how salary adjustments and bonuses were given. Most companies will not have this type of documentation, so you’ll have the leg up when it’s due diligence time. 

NUMBER SEVEN, Conduct annual performance reviews. Performance reviews do add value to your business for a number of different reasons. Number one, performance reviews ensure that employees are given growth and milestones targets. And, if done correctly, those growth and milestone targets should reflect the company’s goals so overall performance is aligned. Number two, performance reviews show employees you care about their performance and growth. While every may not always like to be reviewed, performance reviews do demonstrate that you care about employee growth. As you progress into due diligence, performance reviews and immensely helpful because a Buyer can get a strong sense of their employees, even before they’ve taken over 

NUMBER EIGHT, define company culture. While many people would say company culture is wishy washy and nothing but free lunches and coffee, ask Amazon how they value company culture. Company culture truly defines who Amazon is and how they tackle problems. And, you don’t have to be the size of Amazon to have a clear company culture. Every small-medium sized culture should have a culture defined and understood and documented throughout the organization. Having company culture defined demonstrates maturity to a Buyer. And furthermore, it also demonstrates leadership to your employees and what you expect of them. But most importantly, customers know companies with a strong culture. Customers would much rather interact with a company who has a strong culture because customers know they will be treated with better care. 

NUMBER NINE, pay for your employees’ continuing education. Good employees are well trained employees, and this means making sure they are educated on the last information and practices within their area of expertise. There is a lot of competition and who do you think clients would rather pay for; well-trained employees or employees that haven’t had recent training. Trained employees are employees that are built for growth. 

NUMBER TEN, pay for the best talent.  You’ve heard the adage, “you get what you pay for,” and the same holds true for employees. When employers are cheap with their employees, talent is less capable, and your business will suffer. You may think that you are saving a few dollars in remuneration expense, but you should consider your employees to be an investment rather than an expense. You should always invest in employees that are more talented than you. If you invest in your employees, they will invest in your business. The investment will only propel your business to growth. 

There you have it. Start early and give yourself time to accomplish these HR goals. View HR as a strategic weapon rather than a burden and I guarantee that your business’s increased valuation will be reflected.