Employment Issues when Buying an Existing Business For Sale

There’s a saying that a company’s most valuable asset is its workforce. However, when it comes to buying or selling a business, both the c

  • Employment Issues when Buying an Existing Business For Sale
    Manish Khanna' Image Manish Khanna

    Employment Issues when Buying an Existing Business For Sale

    • Tuesday 4th of October 2016
    • Buying

    There’s a saying that a company’s most valuable asset is its workforce. However, when it comes to buying or selling a business, both the concerned parties are so preoccupied with corporate ramifications that they tend to ignore the considerations of employees. If you are looking to buy a Business for sale in New Zealand, you should never underestimate the employment issues that can very well prove to be the difference between success and failure of your new enterprise.

    Many new business owners don’t ask themselves the right questions in regards to employment issues, and either ends up with individuals that they wish they had not employed or regret not hiring those who would have been useful. In this article, we’ll discuss key employment issues that an entrepreneur must have in mind while acquiring an established business.

    Types of Business Acquisitions

    When purchasing a business, there are usually two modes of transactions that people usually prefer: (1) share purchase, and (2) asset purchase. In a share purchase scenario, the purchaser buys the company knowing that there will be no changes in the status of employees, meaning the existing employees of the business will now work for the new owner. In the case of asset purchase, the purchaser has the freedom only to take over the company's assets and decide if they want to hire all the employees, only a few employees, or none at all.

    Regardless of your choice of acquisition method, it’s important to keep in mind that New Zealand has pretty strict codes of conduct in regards to the employee welfare. And you must make every effort to ensure that there is transparency in the transaction, and the employees are aware of their future employment status.

    Best Practices of Staffing Before Business Acquisition

    The first thing you’d want to do is pay equal attention to employment aspects of the business purchase, as you do with matters of finance. Analyzing staffing levels are the key here, and once you have successfully finished doing so, you’ll be in a position to negotiate new agreements with the individuals you wish to employ. While it may not always be possible to bring negotiating terms until you have acquired the business, but at least by making an effort you’ll get a better understanding of who your employees are, and terms and conditions of their employee agreement.

    If your pre-acquisition analysis shows that the business is overstaffed in the customer service department but could use more employees in the production sector, you’d be in a much better position to address this issue before making the final deal. The worst thing that can happen is you buying an existing business and not knowing anything about the staffing of your new company.

    Employment Issues When Buying an Existing Business for Sale

    Addressing the issues mentioned above before settlement will involve the cooperation of the current business owner who can assist you in various steps along the way. From passing notices about a change of ownership to arranging staff interviews, the current business owner can play a pivotal role in determining the future roles of employees and your would-be company. However, everything is bound to become more difficult after settlement when you’ve become the new employer, and employee terms and conditions have still not been settled.

    For example: what would you do if your new staff does not want to sign the employee agreements that have been given to them? You’d end up in a difficult position as you won’t be able to terminate their employment because they have refused to sign. So, it’s much easier and hassle free to deal with staffing issues before you buy the business.

    These negotiations often begin by providing the prospective employees with a draft employment agreement. Keep in mind the fact that they will be new employees as far as working with you is concerned, so it’s important that you have a written agreement with all the individuals you hire. Every prospective employee is entitled to obtain independent advice regarding the agreement. It’s normal if the potential employees want to discuss some conditions with you, suggest changes to requirements, or choose not to work at all.

    Utility of Employee Agreements

    It doesn’t matter if the employees already have agreements with the seller, as a purchaser, you must provide separate agreements to your prospective employees. These agreements should ideally include a termination clause to limit entitlements regarding termination if they are to be let go of their responsibilities in the future. Even though business purchasers are required to acknowledge services rendered by the employee's prior acquisition, they can limit termination entitlements through legal means.

    In the absence of new employment agreements, the employee's terms and conditions will be governed by the former agreements with the seller. It’s important that you approach these discussions in good faith and do everything in your power to ensure that the employees are not misled. If your conditions are agreeable, the employees will hopefully sign the dotted letters, and you can begin a new mutually beneficial relationship. Lookup on the Names of Top Cities in New Zealand, and you’ll find that business etiquettes are more or less same.

    Conclusion

    If no agreements were agreed upon after all the discussions, you might choose not to proceed further. Then, the responsibility will fall on your shoulders to make a new offer to a candidate who you wish to have in your company. Purchase and sale of an existing business may have its benefits, but it is a complicated process nonetheless. This article addresses some of the most important considerations that you should be aware of from the perspective of employment.

    If in any case, you feel that you may not be able to handle all the legal matters alone, it is better to hire an attorney in New Zealand to look after your interests and ensure a speedy transaction and settlement of all the issues. Buying a business is a huge decision that will shape not only your life but also the lives of your future employees, so it is necessary that you take care of all the aspects of employment with due diligence.

  • Author Info Manish Khanna

    Manish is founder of Business2sell Group of Websites. 

    Business2Sell.com.au is one of the leading business and franchise for sale listing websites. We work with our business brokers, commercial agents, franchisors and private sellers to help them connect with the right buyers for their opportunities. 

    With website now functional in Australia, United States, United Kingdom, Canada, New Zealand and South Africa. We have over 18,000 businesses for sale listed, with over 220 Business Broker and Commercial Agent. 

    I have over 20 years of experience in Web Industry; I have been involved in websites industry since the early years of 1996-97. In my professional career I may have worked for over 10,000+ websites. My Specialty is to build portals or complex online applications.