How HR strategy drives business sale value

In this episode of the Employment Law Pod, Helen Goss is joined by long-time collaborator Rebecca Woolmington, founder of HR Central, to explore how businesses can maximise value and minimise risk when preparing for sale from a people perspective.

With growing movement across the SME market, many organisations are gearing up for investment or exit. But as Helen and Rebecca explain, buyers aren’t just purchasing products, services or IP, they’re buying people, structure and operational stability. That means preparation is essential.

HR data and documentation are often seen as routine administration, but they play a critical role in protecting and enhancing business value. Well-organised records, appraisal histories and clear documentation make due diligence smoother and more convincing. Using real-world experience and practical examples, this episode breaks down what “getting match-fit for sale” really involves and why the work you do behind the scenes can dramatically increase valuation.

Stay tuned as Helen and Rebecca will return to discuss culture, communication, post-sale legal risks and integration challenges, whether you’re buying or selling.

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Transcript

Helen Goss: 0:03

Welcome to the Boyes Turner Employment Pod. So my name is Helen Goss, and I'm a Partner in the employment team with Boyes Turner. We, as you know, do regular podcasts and we look at new cases, legislation, or matters that come across our desk that we think that you're going to be interested in. So we act for a large range of clients from global corporates to small startups and pretty much everything in between. At the moment, we're seeing quite a lot of movement in the SME market with smaller companies gearing up for sale to get them to the next level of growth and investment. So that pretty much means a period of getting match fit in all sorts of areas. But today, and in our next pod, we're going to be looking at things that companies that are planning to sell and also companies looking to buy need to do from a people perspective. On that point, I am very lucky indeed to have with us today Rebecca Wilmington. Becca has an HR consultancy called HR Central. And Becca, we've been working together. I worked out for about 15 years. So welcome. Thank you. Goodness, is it that long? Yes, it is. Because your boys were quite little when we first started working together. The benefit of us working together is that we know what to do and we know how the other one works. And as trusted advisors to clients, that's a really brilliant combination. Rebecca, do you want to give us a bit of information about your team and HR Central?

Rebecca Woolmington: 1:40

Yes, thank you. We're a we're a boutique consultancy. We're based in Goring on Thames. There's four of us. We have two naughty whippets that also attend the office, but there's basically four of us, three consultants and an ops manager. And we deal with the whole of the employee life cycle from recruitment all the way through to termination and everything in between. So employee engagement, management, training, grievances, disciplinaries, anything employee related really.

Helen Goss: 2:03

Brilliant. Thank you. As I said, we're seeing an awful lot of movement in the SME market. And I think that that's an area that we can really help businesses monetize their offering and add real value. So we're going to talk about that today. So our corporate team here at Boys Turner has launched an audit guide for businesses that have sale in mind over the next whether it's five, three, one years. And it's pretty much aimed specifically for the SME market. We've got lots of examples of companies that have been through this process, and this pod is really part of a series of events on that subject. We've actually got a great case study of an actual company gearing up for sale. Chris Dobson from the corporate team will be speaking on a pod as part of this series. Do keep an eye open for that podcast. He's going to be talking to the CEO of a company that sold very, very well. And it's also one that Rebecca and I also worked on. Rebecca, you've got a great analogy that we talked about the other day about getting a business ready for sale.

Rebecca Woolmington: 3:16

I think it's the same sort of process that you go through selling a house. You wouldn't put a house on the market if you hadn't painted the walls and made sure that the rising damp was sorted. And I think it's the same with a business sale.

Helen Goss: 3:26

Yes, I don't know if you ever watch A Place in the Sun, which I do on a frequent basis, but people are always putting in what they call cheeky offers, aren't they? Because they think that they need to do bits of work to make it habitable for them. So they're always reducing the price. And I suspect that that's exactly the same when people are looking to buy a company. Yes, I think it is.

Rebecca Woolmington: 3:49

I think if you can't get your house in order to coin that pun before you sell a business, you're asking for somebody to talk you down and reduce the sale price.

Helen Goss: 3:58

Yeah. No, absolutely. So it's about, I suppose, de-risking the business, isn't it? And as always, some of these things are quite easy to do and others more difficult. Rebecca, I think we're going to be looking at four main areas today. And as I said, we're going to be doing another pod covering other areas, which we'll let you know about at the end of this pod. We're going to be looking at the organization of the business and key personnel, which I think is a really big thing, and it's the starting point of getting your house ready, employee contracts and compliance. Then we're going to look at compensation benefits and then HR data and systems. And in fact, the case study that we have that is also going to be on our website is called Dull Admin Makes You Millions. And I think it's quite an interesting title because actually I didn't find the whole process dull and boring, did you?

Rebecca Woolmington: 4:57

No, not at all. It was really interesting.

Helen Goss: 4:59

So let's start at the beginning. So organizational structure. What are we looking for there, Becca?

Rebecca Woolmington: 5:06

I think we're looking for structure within the business in relation to who reports to who and to make sure that it makes sense for the business, not necessarily for the individuals that are employed within the business. So then it has to be a proper structure with good reporting lines and proper job descriptions so that everything can be mapped and ensure that people are doing the jobs that you think they are doing as well. Because I think there's a lot of legacy things that happen over a period of time.

Helen Goss: 5:32

It's so funny you say that because when we're doing, for example, redundancy programs, very often people are not doing the actual job as per their job description, that over a period of time their jobs have evolved. And actually they're doing something quite different to their original job description from when they first came into the business. Presumably it's just about creating efficiencies and clarity as to who should be reporting to who.

Rebecca Woolmington: 6:02

Yes, and I think these things should take place as part of the appraisal process on an annual basis anyway. But as you and I know, sometimes those appraisal processes don't take place. So I think it's around having a good review of looking at the skills matrix within the business as well as looking at the job structures and the reporting lines.

Helen Goss: 6:19

Yeah. But of course, that brings us on to the issue of key people. And that's such a massive subject, isn't it? Because we need to know who are the key people, why are they the key people, what is it that we want to retain, and how do we do that? How would you approach that?

Rebecca Woolmington: 6:38

I think there needs to be a really in-depth review of that because there's always an assumption that the senior people within the business are the key people. But actually, if you have somebody that has worked on a technical project on and with and technically within the business for 20 odd years, they've got a lot of IP, they've got a lot of knowledge, and those are the people that the potential buyers will want to retain within the business. So it's really understanding your people and where that knowledge base sits.

Helen Goss: 7:02

And I suppose there's always that very awkward situation where the people who think they're the key people may not actually be the key people. And so that potentially will require a very difficult conversation.

Rebecca Woolmington: 7:18

Yes. I think the difficult conversation piece is always tricky, especially with a potential seller who has maybe emotionally left the building a little bit because they think they're going to get a big, a sizable chunk of money for their business. And it's up to us as their professional advisors to get them to take those responsibilities of having those conversations quite seriously. Because it may be that you have to exit some people and reorganise the company so that it is fit for purpose and it is fit for sale, because somebody coming into the business might not want to have four accountants, for example, when two would do. So I think there is a lot of a discussion to be had, and we can help with those difficult discussions as we have in the past.

Helen Goss: 7:58

Yes. Well, of course, we've had situations where actually it's some of the original founders or senior people who perhaps are not now the right fit for the business, and we've had to have difficult conversations with them about their potential exit.

Rebecca Woolmington: 8:18

Yes, and those are the really tricky situations. But I think it it's not what you do, it's how you do it. And I think if you do it with sensitivity and you've set out why those difficult conversations have to take place, it's all about planning and the evidence to support those difficult conversations that's essential.

Helen Goss: 8:34

Presumably your being there on the ground really helps those conversations.

Rebecca Woolmington: 8:40

Yes. And sometimes you have to ensure that they're they're documented always, but sometimes just writing scripts or being there to answer those difficult conversations and an external third party is always useful, I think, in relation to small businesses, because a lot of the businesses that we may be involved in selling are SMEs. You know, they're family-owned. There may be other undertones that we need to get to grips with in relation to family discussions and well yes, because when you're setting up a business, it's blood, sweat, and tears, isn't it?

Helen Goss: 9:09

You put your heart and soul into it, and it can then be fairly devastating to be told that perhaps you're not the right person to be taking the business to the next level.

Rebecca Woolmington: 9:21

Yes, absolutely. And I think especially in family-run businesses where you might have employed Uncle Joe for a bit, but actually he stayed for 20 years, he may not have the right skill set to take the business forward. So it's identifying those tricky areas and hand holding to a certain extent through those difficult conversations.

Helen Goss: 9:38

Exactly. So once we've identified who those key personnel are or those critical people, it's about making sure that we take them with us on this journey, which can be a bit tumultuous, can't it?

Rebecca Woolmington: 9:50

It can, but I think again, if you plan and you're involved and you're sensitive around those conversations, it's possible, as we've seen in real life, it is possible.

Helen Goss: 10:00

What are the things that leaders need to do once they've established who those key personnel are?

Rebecca Woolmington: 10:06

I think they need to write down a skills matrix and identify where those skills are. Because transparency when you're selling a business is key. I think job descriptions need to be defined. I think gaps need to be filled if there is recruitment to take place, then that needs to happen. And people need to be exited from the business safely and ahead of time so that you don't have those potential tribunal issues hanging over you. So it there's a lot in the preparation, but I think it's starting early and ensuring that the business is match fit for sale ahead of time. So maybe a year, 18 months previously. But actually, all you're really doing is making sure your business is running efficiently anyway. So why wouldn't you do that?

Helen Goss: 10:46

So even if there isn't a sale, you should really be doing these things to make sure that your business is running properly. I think so, yes. What about keeping people engaged? Because however secret you want to be about the fact that there's either about to be a sale or you're planning a sale, these things nearly always get out. How do you ensure that those critical people stick with you?

Rebecca Woolmington: 11:11

I think there has to be trust within a business. The minute the trust is gone, you can't get that back. I think transparent conversations, carefully scripted, so you're not giving too much information away, but that people are aware that there is potential change afoot is always the best policy. In this particular case study, when we worked with the managing director, we did employee engagement surveys very regularly. So once we delivered the message around what the change potentially might be, and it was only a might, we didn't there wasn't a guarantee the business would sell. We then engaged in surveys with the staff to understand how they felt, and then we would have regular meetings, so maybe every couple of months just to update them. It doesn't have to be a long, drawn-out process, just a sort of 20-minute lunch and learn or a quick catch-up in the morning. But I think keeping that communication channel open is absolutely essential.

Helen Goss: 12:02

Yeah. And in fact, we are going to be talking a lot more about communication in our next pod. Now then I just needed to talk about succession planning because as a lawyer, we talk about succession planning quite a lot. And I know that it's essentially leadership continuity. But can you talk to us about what it means on the ground and how that affects the actual business in terms of that planning?

Rebecca Woolmington: 12:29

It's not always leadership. I think it starts at the beginning at the bottom. So you could have it, for example, in an accountancy department, you could have accounts assistants that are partaking in qualifications to become accountants. You've got the accountants, and then you might have finance director. So it's around ensuring that the skills that you need within the business are there in whichever format they need to be, but also that you're encouraging people to stay and to develop. And I think if you have that mentality, it's easy for people to buy into staying within a business because they can see their career as being nurtured. I think it's across the board, it's not just leadership. And those conversations have to take place. They're a two-way conversation. You have to ask the employee what it is that they want because they might not be career focused, they might just be happy coming in, doing their job and going home. So it's about understanding your team, understanding your people and being able to satisfy their needs to retain them within the business.

Helen Goss: 13:22

Sometimes businesses who've got investors involved, do you find that sometimes those investors have a view about who they think is the right person or succession planning?

Rebecca Woolmington: 13:33

They do. Seems to be a little more cynical than maybe most. But but it's a val they've got a valid point, you know, and they're looking at it from a different perspective. They're looking at it from a financial viable viability perspective. So I I think it is viable, but you have to I think you have to consider everything. You know, it's not just one person's opinion. I think there is a lot that goes into those succession planning type discussions. But it's important to document the output from those kind of conversations too.

Helen Goss: 13:59

And of course, you're speaking my language now because as a lawyer, we always want to paper trail around these discussions. And that's part of the compliance that you should have in your business in any case, when you're doing appraisals, when you're having difficult conversations, when you're having important conversations about job descriptions, etc. Document those conversations.

Rebecca Woolmington: 14:22

Absolutely. And I think that was one of the things that won through with the due diligence for this particular sale, because we were able to demonstrate that those appraisal conversations had taken place over a number of years regularly and were documented. The output was there for clear everybody to see, including any grievances and disciplinaries as well. So everything was there laid bare for everybody to see if they wanted to purchase the business.

Helen Goss: 14:44

Yes, and I suppose there is also when the business is focused on a sale and potentially large sums of money are almost within touching distance, founders who've been very kind and magnanimous and turned a blind eye to certain behaviours become a bit more focused and presumably slightly harder hearted.

Rebecca Woolmington: 15:06

Yes, and I think that's why it's so essential to start 18 months out.

Helen Goss: 15:10

Yeah.

Rebecca Woolmington: 15:11

Because if you start changing the culture of the business a month before your sale, all you're doing is disrupting the the peace and quiet of well-functioning business.

Helen Goss: 15:20

No, that's a good point. Yeah, absolutely. Now then, this is the bit that probably in our case study is referred to as being the slightly boring admini bit, but looking at employee contracts and compliance. But so often, when a tiny little startup that then grows, which is obviously the dream for every startup, the founders who will be directors and shareholders, but also working in the business, don't have employment contracts or service agreements.

Rebecca Woolmington: 15:56

No, they don't. And if they do, more often than not, they've been downloaded from some website. Yes. And they're not fit for purpose anyway. And you have to look at the IP, you have to look at the confidentiality aspects, it becomes a real problem. And I think again, looking at that ahead of time and getting those issues resolved and getting the right paperwork in place and signed is absolutely essential.

Helen Goss: 16:17

Yeah. No, we see it all the time. And the they don't want to spend the money at the very beginning, which I completely understand, because when you're counting every single penny when you're starting up a business, but it's potentially a false economy because there is inevitably movement in and out of that leadership team as the business grows, even slightly, because the people potentially there to build a business may not be the right people to lead it to the next level. And of course, if you don't have contracts, then there are issues around confidentiality, IP, very particularly, as you mentioned, but also restrictive covenants, those people going on to another business in competition with you.

Rebecca Woolmington: 17:02

I think also a lot of SMEs start out as either friendships or they're family businesses. And there's I hear so many times, well, we're friends, it's all great, it'll be fine, there won't be any fallout. And I always say to my clients, you should prepare for divorce, not for marriage, because actually those relationships can change very quickly and turn sour very quickly, and you need to have that contractual paperwork to rely on to either exit somebody fairly or to understand what you can and can't do.

Helen Goss: 17:32

Yes, and also, I mean, Chris will talk about this from a corporate compliance perspective, but you need the articles of association, you need shareholders' agreements. These are all really, really important documents to have when you're setting up a company because it becomes the rule book for what happens in the future when you want to bring in new people, when you want to exit people, what happens to their shareholdings, their directorships, let alone the employment relationship. So we've established, Becca, that everybody needs a contract. But of course, it's a bit obvious that it should be signed and dated. So often we get given contracts that they think is the contract that was signed, but they're not entirely sure because they haven't got a signed or dated contract. Yes, that happens a lot.

Rebecca Woolmington: 18:19

It does. And I think our clients are encouraged and also bullied sometimes into making sure that those contracts are signed and dated and stored in an appropriate fashion. Because you could have a signed contract somewhere in your office. Where are you going to find it? You know, these things, once they think they've been completed, they just put them to one side. Yeah. Whereas actually they're they're a living, breathing document. You have to keep it somewhere where you can refer to it. And that's why we always urge our clients to put it into an HR information system so that both parties, the employee and the employer, have access to that information. And obviously, that really helps with the due diligence process moving forwards.

Helen Goss: 18:57

Oh, being able to put your fingers on a document when somebody asks for it is absolutely invaluable. And and again, in the case study that will be on the website that will accompany this pod, the CEO mentions that so often that he's there at midnight trying to find various fire certificates or contracts, etc. And that he'd wish that they had started this process earlier to try and get things organized. Now then let's just touch briefly on the issue of employment status. Not to talk about the legal implications, because that would be a sort of an all-day face-to-face conference. But does everybody have the right type of contract? That's such a big issue, isn't it? Particularly now with the Employment Rights Act coming up and the the zero hours contracts or the self-employed status going out of fashion slightly.

Rebecca Woolmington: 19:55

Yes, I think it's really key because I think a lot of SMEs buy in talent. Yes. They need a particular skill on a full-time permanent basis. They bring in this talent and then they find actually that person's landed and expanded and stayed, and they're really doing full-time just for them, which causes all sorts of issues as as we've known over various cases.

Helen Goss: 20:20

Are they really either employees or workers?

Rebecca Woolmington: 20:23

Yes, and that needs to be put under a microscope really early on. Because if you need to change those people into permanent employees, that needs to be thought about, it needs to be budgeted for, there need to be proper discussions, and that it almost links back to the very first point that we made around the structure of the business. But it's really important to note that those people may maybe flies in the ointment later on.

Helen Goss: 20:46

Well, we had a case, I don't know if you'll remember it, Rebecca, where one of the director level people had come in as a consultant, so on a self-employed basis, but had been heavily involved in the sale process because of her particular skill set, and then at cr the crucial moment argued that she was an employee and was then entitled to equity in the business as a consequence.

Rebecca Woolmington: 21:16

Yeah, I do remember that because it was painful.

Helen Goss: 21:18

It was painful.

Rebecca Woolmington: 21:19

I think again, although I understand the client did try to talk to her about permanent employment, you have to cut the cord eventually. And if they won't conform to how the business needs to run, you need to change that person out for something that's going to work for the business.

Helen Goss: 21:36

But that's as we said earlier, it's about looking and seeing what should your business look like, what should the organization look like, the organogram, etc. It goes without saying we need to look at visa and work permit compliance and also make sure that your handbook and policies are up to date. Now that might be a bit boring, possibly. We don't Find it boring, but some people might, but it is an essential for sure. Now let's just talk about compensation and benchmarking compensation. So that's something I know that you do, Becca, isn't it? It's a sort of key exercise for businesses.

Rebecca Woolmington: 22:14

It is. I think if you're not paying the right amount of money to somebody in their salary, then they're going to look for some something else. They're going to know what their market rate is. So it is essential to benchmark salaries. We do it on an annual basis for a lot of our clients, just before pay review time.

Helen Goss: 22:30

Yeah. I think that from the legal perspective as well, consistency within certain bands or grades is really important because otherwise you've got that risk of potential equal pay or discrimination if you're not paying on a consistent basis. And of course, the problem comes where one of the founders knows someone and they've worked with them before and they're a really great sort of a person. And let's bring them in, but they're going to pay them a bit extra because it's such a good catch. And then you find that that might, for example, be a male who's paid significantly more than someone who's female on the same grade. And then we've got a potential equal pay issue. So that consistency and fitting within salary bands, etc., is really important.

Rebecca Woolmington: 23:19

It is, and it does link back to that very first point that we made around job descriptions. So you have to have those job descriptions really succinct and accurate so that you can benchmark appropriately.

Helen Goss: 23:29

Yeah, exactly. Now, what about equity? So shareholding schemes, stock options to reward employees with LTIPs, STIPS. How do you find the structure around that? Because my experience is often that they've planned to do it, but they haven't quite got the paperwork in place, or they've got some sort of paperwork, but it's never actually been ratified by the board. And so there's a massive amount of well, there's not much clarity around it.

Rebecca Woolmington: 24:03

I think that is a really key point because you need to retain your best people because in a lot of businesses that's what you're selling. You're selling the intellectual property, but you're also selling the people element because that the people are the business. So I think to keep the employees happy, there needs to be that review and make sure that you have all your ducks in the room, make sure the paperwork is recorded. And if it's not, get it done pretty down quick. Yes, exactly.

Helen Goss: 24:27

And of course, giving people a stake sort of ties them to you, which in lots of instances is a good thing. But of course, if it's a person that you're planning to exit is not such a good thing, because perhaps the wrong people are determined to stay if they consider that there's some sort of event coming where they're going to get some money.

Rebecca Woolmington: 24:49

Yes, I think it goes back to drafting them properly and ensuring that everybody's very clear on what's going to happen to the business and those payouts as and when they do occur.

Helen Goss: 24:58

Yeah, exactly. Right, Becca. So I think we've established that there is a lot of admin involved, but it's not boring admin. It's actually quite exciting when you think about what the potential results are. And in our case study, which is a case study of a real event, the company was valued at X, and then when it was sold, it was sold less than three years later for nearly five times that amount, because the business had gone through this process and meticulously worked on making themselves sale match ready.

Rebecca Woolmington: 25:38

Yes, and I I think a lot of small medium business owners don't want to do it, they don't know how to do it, they don't know what they don't know, which is why we we are in business as to be outsourced and to ensure that those things are completed in a compliant way.

Helen Goss: 25:54

Yes, and you know, a lot of the time people can do some of it themselves, but I I think sometimes they need somebody, whether that's HR or the lawyers, to hold the mirror up to them and show them areas that perhaps they're not looking at because they're just blind to those particular areas in the way that we've talked about. So the next pod, Becca, that we're going to be talking about will be quite a big subject of culture, engagement, communication, the legal risks, considerations post-sale, which again can be quite big things. So whether you're selling part of a business or whether you're buying in a business, so that integration bit. So that's that's quite a big subject for our next pod. Thank you, Becca, so much for your time. And as I say, we love working with you and your team because I feel that we do some really interesting work, and of course, we do have a little bit of fun along the way, don't we? We do. Thank you for having me, Helen. Please do look out for our next pod, which will be in a few weeks, but also look out for the pod with Chris Dobson from our corporate team and CEO Rich Paulin. Do also look out for our case study, which will be on our website. 

So thank you again, Becca. Um, and actually, before you leave the building, I have got an issue of a company that's looking to sell. If I can just have five minutes before you leave the building, that would be fab. Of course. Thanks for listening, everybody. If you're interested in checking out more episodes in this series, do go to the Boyes Turner website. You can also follow us wherever you listen to your podcasts. Goodbye.