M&A Seller: Review Organization & Update Org Charts

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As you prepare to sell your business, it is important to review every interaction that you have in the normal course of business (both inside and outside the Company), to ensure that all critical ‘people’ have been considered.  People include all employees, plus outsourced resources that don’t appear on the organization charts.

There are four steps to ensure an effective review:

  • Define the ideal organization to meet the current requirements, and anticipate the Company’s strategic needs.  By using all activities as the basis for the review, you will include outsourced activities not represented on the organization chart.  The proper organization chart definition should include a brief position description, and technical, educational, and experience requirements.  Strategic needs may be those that require some time on the job, within the Company, that are not an immediate necessity.   For example, a specific process related to a new product introduction may require a year’s exposure to the Company before the job is fully functional.  This position would properly be included in the chart. 
  • Each position should be assessed to determine if it is in the “Keys to Value” area.  The keys to value are those critical positions that most differentiate you from your competitors.  For example, in a high-tech hot-growth company, Research & Development (R&D) may be a critical function, while shipping may require less training and critical skills to the company valuation.  A Key to Valuation in this case would be the R&D function.
  •  For all those critical employee positions in the organization chart, determine if the jobs have been properly described and position requirements have been properly defined, including prior work experience and education.  Be careful to describe requirements as those essential skills to meet the Company requirements, and don’t create the requirements to meet the skill set of an available person.  
  • Once the positions have been properly defined, determine if the current employees fit the company requirements in each position.   Sometimes jobs are created to suit an employee, rather than the job description necessary to meet the company requirements.   If employees don’t fit the company needs, it doesn’t require that the employee be eliminated, but rather that management recognizes the misalignment that could create negotiating tensions, and potential lost value. If skills or experience are lacking, you may want to:
  • Invest in the training and development, if sufficient time and resource is available.
  • Replace the individual or,
  • Add additional resources to fill the critical needs (e.g. outsource the incremental skill/experience requirement).

The same four-step evaluation process should be used for all outsourced activities.

Once key individuals/outsourcing are identified, determine how you can secure the appropriate commitment from them. Imagine after all this effort that some of the keys-to-profit simply leave the Company?

One caution… you should make organizational structure and resource changes well in advance of any probable sale transaction.  It is important to have a period of stability prior to sale, so that you have a demonstrated performance with the current structure and team in place.  After a Company restructures, worker’s compensation claims, absenteeism, and employee legal suits often increase.  Potential buyers will be wary of significant changes in personnel, organization structure, compensation and benefits changes within a short time of the sale.