While pros and cons exist for both, there's likely a workforce strategy that is most preferred by potential buyers.
We often get asked about the best workforce strategy when preparing a business for sale. In our most recent podcast episode, Joe and Chandler addressed the question many business owners want to know: Is it better to have hired employees or contracted labor? As with many things in business, the short answer is: it depends!
Hired Employees: Stability & Loyalty
Having a dedicated team of hired employees can certainly boost the attractiveness of your business. A loyal workforce suggests stability and consistent quality, which are appealing traits for any buyer. This is because employees who are invested in the company's success are more likely to maintain high standards and ensure continuity of service.
However, there are downsides to consider. Employing staff full-time comes with higher overhead costs, including benefits and administrative expenses. Joe acknowledges that "the extra work of managing HR and training can also be a downside for buyers." These added responsibilities can reduce profit margins and make the business seem less flexible.
Moreover, if you’re a hands-on owner heavily involved in day-to-day operations, this might deter potential buyers who are looking for a business that can run independently. "If you put in 50 hours a week, there's probably some adjustment needed," Chandler explains, "because PE firms might walk away if it’s all about you."
Contracted Labor: Flexibility & Specialized Skills
On the other hand, utilizing contracted labor offers significant advantages, particularly in terms of flexibility and cost management. Contracted labor allows businesses to scale their workforce up or down based on demand, which can be very appealing to buyers. Using contracted labor means lower overhead costs, which makes financials look better.
Additionally, contracted labor can bring specialized skills to your business without the long-term commitment, making it easier to take on diverse projects and meet specific client needs. However, this approach also has its drawbacks. Contracted workers might not have the same level of loyalty and commitment as full-time employees. "Having less control over quality can hurt profits and reputation," cautions Chandler. This lack of consistency might worry buyers about the long-term viability of the workforce.
So, What's Best For Me?
Ultimately, the choice between hired employees and contracted labor depends on the nature of your business and the specific needs of your operations. In industries like retail and hospitality, a stable workforce is typically preferred due to the need for consistent customer service and long-term relationships. Conversely, sectors like construction or IT, where project-based work and specialized skills are common, may benefit more from a flexible, contracted workforce.
For many service-based industries relying heavily on manual labor, such as landscaping, a mix of both hired employees and contracted labor often proves to be the most favorable option. A hybrid approach can allow a business to maintain a stable core team while also enjoying the specialized skills that contractors offer.
Keep in mind that as you get closer to selling, it becomes less feasible to make significant labor adjustments. But it may not even be necessary or wise to implement such changes. At the end of the day, whatever labor strategy your business has used up to this point has most likely been working. Smart buyers will recognize and appreciate any decisions that have resulted in success. Simply put, the labor force that buyers prefer is the labor force that a successful business operates with!
Understanding and highlighting the strengths of your business is our specialty. Our goal at Robbins Pellegrino is to help you prepare your business for a successful sale. If you're ready to explore your options and achieve a profitable exit, reach out to us today for personalized advice and guidance.
About Robbins Pellegrino: Robbins Pellegrino is a Florida-based business brokerage firm led by Chandler Robbins and Joe Pellegrino, Jr. that is committed to redefining industry standards. We focus on creating meaningful partnerships and ensuring successful business transitions for both buyers and sellers. For more information, visit us at www.robbinspellegrino.com or call (239) 360-6273
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