Thinking About Selling Your Business? Address Human Capital Issues Head On

In 2021, U.S. business-for-sale transactions recovered 14%. In the fourth quarter alone, transactions grew 28%, surpassing pre-pandemic levels. This bodes well for leaders looking to sell their businesses in 2022. What doesn’t bode well, however, is the effects of the Great Resignation on staffing.

Job openings are skyrocketing as people quit their jobs in just about every industry. The U.S. Bureau of Labor Statistics reports that about 3% of the national workforce resigned each month from August to December 2021. With that, the likelihood of your company being appropriately staffed is slim to none—which means things might not be running as smoothly as they should.

When it comes to selling your business, personnel changes and understaffing problems could affect your plans. Every situation is different, however. It would be a disservice to say definitively, “Yes, sell” or “No, don’t” if you’re dealing with the challenges facing staffing. As always, you should evaluate the business as a whole to determine whether it’s in a good position to sell and whether the time is right.

But if you’ve asked yourself, “When should I sell my business?” and the answer is now, then you must know how to approach a potential buyer of your business about understaffing problems.

Talking About Understaffing Issues With Potential Buyers

Whether it’s the health crisis, the 3.9% drop in consumer spending in 2020, or whatever else pushed you to sell your business, buyers are looking for answers. Today, they’re most concerned about the stability of cash flows and the likelihood of growth. If cash flow is stable, then understaffing issues in your workplace shouldn’t decrease the value in and of itself. The reverse is also true. Are the challenges facing your staffing preventing growth? Then that could have a negative impact on the sale.

If staffing has been a drag on the business, one mitigating strategy would be to talk to buyers about changes your company has done to do more with less. For example, maybe you came up with a new process that significantly saved employees’ time or lowered costs.

Here are four other steps you can take to communicate with potential buyers about how you’re overcoming staffing challenges so you can make the best sale:

1. Think like a banker, not an entrepreneur. Entrepreneurs are usually optimistic about overcoming obstacles and persevering. They tend to overestimate business valuations. Bankers, on the other hand, want to make sure their loans don’t sour. They have a broader perspective on things.

Although I’m not encouraging you to be pessimistic about understaffing issues, you should come up with a detailed action plan that addresses the problem so buyers know you’re doing all you can to fix it. That might involve hiring someone specifically to work on staffing, for example.

2. Develop cross-training programs.How can you decrease the pain your employees are feeling due to understaffing problems? One way to start is with cross-training, which has been shown to improve employee performance as well as organizational success. At one of our portfolio companies, Southwest Steel, our best employees are the ones we have trained in-house and have grown up in the business. As such, there are few functions they cannot do.

Be sure to ask employees what kinds of skills they want to learn from other departments in your organization. Then, create cross-training programs with concrete milestones so participants can track their progress. Cross-training shows employees that you care about their growth and makes it easier for them to step in if a different department is dealing with understaffing issues. It also communicates to buyers that you have a highly skilled team with diverse knowledge.

3. Show that the business is stable from the top down.Burnout has been on the rise due to the pandemic, and the Great Resignation is perhaps hitting managers the hardest. With 47% of them considering finding less demanding jobs, and 60% spending more time per week on hiring than in 2019, it’s more important than ever to keep managers happy and engaged.

At my company, we usually talk about this in the context of servant leadership, which is one of our pillar values. Our interpretation of servant leadership is helping others be more successful. In a time of staffing difficulties, I might ask our senior leaders what I could do to help reduce their workload.

So aim to give managers extra support, then communicate with buyers that you’re doing more to help senior team members who make up the backbone of the organization. After all, if managers are happy, then they can focus on making their reports happy. This will help showcase that you’re maintaining business process stability throughout the organization despite understaffing issues.

4. Consider increasing wages.People switch employers for several reasons, but better pay and benefits are key factors. According to a Personal Capital survey, 52% of people said the main reason they switched employers was for higher pay, and 35% switched for better benefits (such as retirement and healthcare).

Think through what changes would need to be made to increase wages by 20% or more or to offer better benefits. Could you increase prices? Introduce automation to save costs? Reduce staff (with no decrease in revenue)? Often, understaffing problems can be solved by increasing salaries. Buyers will appreciate your proactiveness around staffing.

Deciding whether to sell your business takes a lot of thought and planning. But once you do start the process, knowing how to approach a potential buyer of your business is critical. Taking steps now to overcome staffing challenges or perceived staffing challenges lets you have transparent, productive conversations with buyers so you can get the best value for your business.