What your organizational leadership structure should be post-acquisition

You are weeks from closing on your business. You’ve spent countless months searching for the right business. You’ve reviewed company after company and you’ve finally gone under LOI. Everything has checked out. Legal work, done. Quality of Earnings, verified. You’ve worked with a diligence firm and they’ve verified you are buying a scalable business. You’ve even convinced your wife that buying a business is the best thing for your family. Now, the hair on the back of your neck starts to stand tall. You say to yourself, “wow, this is really happening.” You tell friends, family, colleagues, that you are now a business owner. They pat you on the back excited for you to realize your dreams. Soon, however, that excited feeling quickly moves to anticipation, and then anxiety with the thought that it’s you who is charge. That all decision making starts and ends with you. People have advised you that entrepreneurship is lonely, but you didn’t give much thought to it. Now you feel every ounce of the weight on your shoulders. The truth is, you don’t have to feel that way. Yes, you own the business, but it doesn’t mean you have to feel alone. What you need… is to start thinking like an entrepreneur and surround yourself with people who can help you run your business.

Where do you start?

What roles do I need?

Should you hire full time or fractional support?

How do you handle your employees from the acquisition that are already in leadership roles?

In this post, we will answer these questions and more.

Where to start

The very first thing to know is that you now own the business. Whether you are a solo-prenuer, a Holdco, or an Independent Sponsor, it’s your business now. Assuming you didn’t pay cash for your business, it’s your primary responsibility to payback your loan debt or make your investor whole. It’s also your sole responsibility to grow the business to make this journey financially worthwhile. I bring this up because many Buyers are told, post-acquisition, you need to sit back, learn, listen and definitely, do not make changes. It’s almost as if they have a duty to the previous Owner to keep the business intact and to take care of their former employees. The reality is, you need to do what’s in your best interest to grow the business, pay back your loan, and deliver to your investors what you’ve promised them. From an HR perspective, that means you need to surround yourself with the best talent to make it happen, and, that means the HR process should start during due diligence.

HR Diligence

When you complete your HR diligence, you should get an organizational chart with names and titles, job descriptions, and past performance reviews. From there, you are not just diligencing the company, but also its employees, especially the Managers and above. You should understand what each employee does, what they don’t do, and their talent. You may not get all of this from the current owner, but you can likely pull some information from LinkedIn. From there, you can build a pro-forma organizational and talent gap and SWOT analysis. The advantage of completing the exercise is you are able to think through the your talent needs on day one. You can also think through if you need to bring in fractional support or rely solely on the exiting team.

What leadership roles do I need?

Every situation is different, but there are a few constants in business. For us, those are revenue (sales / marketing), running the business (operation), and financial controls.

The most important thing you can ever do post-acquisition is take hold of your sales. With revenue, anything is possible and without revenue, nothing is possible. Even taking away just a fraction of the revenue will challenge the business by reducing cash flow. This makes everything more difficult, but principally reducing the cash flow makes paying back your loan and making payroll more difficult. Not paying either of those has serious consequences. Therefore, ensuring you have people to support sales must be your number one and number two priority.

From there, we always suggest making sure you have an Operator in place. An Operator, is most cases is different than a GM. A GM ensures the Operations are running smoothly. An Operator does that, but what makes an Operator different is they run the business. An Operator runs the operating meeting, sets the budget, understands the drivers of the budget, develops strategy, and has a span of control greater than a GM. For example, an Operator is main point person for the Operations, Finance, Legal, HR, Customer Service, and possibly Tech. You should ask yourself if you should be the Operator as a business Owner. It’s sudation dependent, but reasons we suggest against it is you as an Owner need to think of yourself as the CEO. What’s the difference? The CEO sets the strategy and promotes the business. The CEO is the brand ambassador who paves the way for the sales team to enter.

Lastly, you need to make sure your financial controls are in place. Bookkeeping is paramount and beyond that, you need someone who can put together financials and ensure their accuracy, including the P&L, cash flow statement and balance sheet. A good controller should also help to ensure the General Ledger (G/L) is set-up correctly, can do FP&A work and installs the correct financial software.

Beyond these three roles, other leadership organizational needs are situational. For example, if the business is technical or software driven, you may need a CTO/CPO.

The benefit on using Fractional support on day one

What are the benefits of using fractional support, especially if there is an existing team in place. There are many benefits:

• You increase your time capacity to actually learn the business while your fractional team is running it

• Back to revenue, bringing in fractional sales support can help to minimize revenue dips, aka the “J-Curve”

• Fractional support usually means upgraded talent. You want to surround yourself with talented people who can drive your business

• Fractional support doesn’t come with the baggage of employees who have been with the business for years

• It’s likely you don’t need full time employees in leadership roles yet

How do you handle your employees from the acquisition that are already in leadership roles?

As we have stated earlier in the post, your primary responsibilities are to grow the business, payback your loan, and deliver to investors what you’ve promised. It’s your job to understand if the employees you’ve acquired through the acquisition will help get you accomplish these responsibilities or not. If you feel that the employees can help you get there, then support them. If not, develop a replacement plan. We don’t mean to be short or crude on this point, instead, we’d rather engage honestly. One of the worst things you can do is string employees along for a year or two because you’ll likely inhibit the business’s growth and simultaneously demonstrate lack of decision-making ability. However, if the existing employees are great, you should foster their growth.

Many Advisors will suggest you wait at least three month or more to make decisions. We always suggest making decisions quickly and trusting your gut. If you feel something or someone doesn’t fit with your vision, there is no reason to delay a decision. Considering, of course, that you have a plan in place to backfill their work.

Conclusion

We believe, from an HR perspective, the most important post-acquisition leadership structure is the one that best supports the growth of the business. Make sure to surround yourself with the best talent that can help you achieve that goal. There is a wealth of Fractional support to help you get there that won’t break the bank on day one. Ensure that a proper HR diligence is completed to assess talent and understand gaps. Be disciplined and make decisions quickly about the employees you’ve recently acquired. It’s your job to be the leader of your company, not the company leading you.