Key Employees:
Identify those employees that will be key to you as the new owner. Remember that an employee that may not have been key for the current owner may very well be key for you.
As an example you are considering purchasing an advertising agency where the current owner is a graphic designer by education and has over twenty years of experience in that field. Currently the company employs one graphic designer. The current owner does not consider the graphic designer to be a "key" employee because if that individual was to leave he, the current owner, could step into that position until he found a replacement. As you are not a graphic designer by trade, if you purchase the business, that graphic designer immediately becomes a "key" employee for you.
There are many ways to entice key employees to remain with the company. Things to consider are profit sharing and/or shares in the company. People generally appreciate “titles” and it is a very inexpensive way of showing your gratitude. Titles such as V.P., Director and Manager can go along way towards retaining an employee. It should be noted that giving a current employee a title that may be well above his actual work responsibilities will make it more difficult for him to find a new position should he ever consider leaving. The first reason is that most people have a reasonable ego level and if you are currently a “manager”, even though your job function and income may be that of a clerk it will be very difficult, mentally, for that individual to take a new job as a clerk even though it may pay more. Secondarily, companies, as a general statement will not hire individuals who currently have a higher title for a position that has a lesser title. As an example, most companies would not hire a former V.P. of Sales & Marketing as their Manager of Sales & Marketing even though the individual is more than qualified to perform the duties. The reasoning is that they believe that as soon as that individual finds a position as a V.P. they will leave, which, from my experience is a very valid assumption.
Unions & Associations:
Are some or all of the employees’ part of a union or an association? If you are acquiring the shares of the business any union and/or association contracts that are in place will have to be honored. This may have an affect on your immediate and future staffing and overall business plans. Many union and association contracts stipulate terms that have an affect on items such as out sourcing of assemblies for products being manufactured.
If you are acquiring the assets of a business where the employees are part of a union or association you may be walking into a hornets nest. In theory any agreements that the employees have through their union or association remain with the corporation and as you are not buying the shares you in theory do not have any contracts in place with these organizations. The current relationship between the corporation and its employees through their representatives may very well determine what attitudes you will face as the new owner.
If the employees of the business you are looking to acquire are in fact members of some sort of collective bargaining unit I highly recommend that you meet with the representatives of the bargaining unit as part of your due diligence exercise and prior to drafting any Purchase Agreement documentation.
Salary & Wage Reviews:
What has been the history of salary and wage reviews, are they done on anniversaries or on a piecemeal basis? Are increases based on merit, increases in costs of living, length of time with the company or a combination of all of the aforementioned. Determine the likelihood that you will be faced with a major increase in payroll expenses in the next few months.
Bonuses:
Does the company have a history of paying year-end or Christmas bonuses? If you purchase the company towards the end of the year you will be responsible for the expense of the bonuses while the seller reaped the benefits associated with the employees expecting the bonus. Year-end bonuses and their effect and timing can, if identified ahead of time, be mitigated for you, as the buyer, in the Purchase Agreement. Investigate any other bonus or commission expense that you might inherit and be liable for if you acquire the business?
Allowances:
Does the company currently provide clothing, travel, tool or any other type of employment allowances? Are the terms documented and are all employees treated the same? Do the employees owe monies towards any of these allowances to the previous owner?