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Practical employment law information to support your business, from Clover HR

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Establishing a successful recruitment process and clear written employment contracts for new employees can have a major impact on your business.

Every business needs to be aware of its obligations under minimum wage and equal pay laws, as well as recent pensions auto-enrolment changes.

The right employment policies are an essential part of effective staff management. Make sure any policy is clear and well communicated to employees.

While sick employees need to be treated fairly, you need to ensure that 'sickness' is not being used as cover for unauthorised absence.

Most pregnant employees are entitled to maternity leave and maternity pay, while new fathers are entitled to paternity leave and paternity pay.

As well as undermining morale, illegal discrimination can lead to workplace grievances. Employee discrimination is covered by the Equality Act 2010.

Home, remote and lone workers are becoming increasingly commonplace. Key issues include communication and how to manage and motivate people remotely.

The right approach to consulting with and providing information to your employees can improve employee motivation and performance.

Disciplinary and grievance issues can be a major burden to employers. Putting in place and following the right procedures is essential.

Following the right dismissal and redundancy procedures helps protect your business and minimise the risk of a legal dispute at tribunal.

Employment tribunal claims are a worrying prospect for any employer. A tribunal case is a no-win situation – even if the claim is unjustified.

What is my business worth?

Establishing the sale value of your business can be difficult. While well-known valuation methods can give you a rough idea, ultimately your business is only worth what someone is prepared to pay for it. The right approach to negotiating a sale can have a big effect

Valuation methods

There are several standard techniques that can be used to provide a benchmark valuation for your business:

  • price/earnings - based on multiplying your profits by an appropriate ratio (the price/earnings ratio)
  • asset valuation - based on the assets your business holds
  • entry valuation - based on the cost of starting a similar business from scratch
  • discounted cash flow - based on likely future cash flow
  • industry rule of thumb - if your particular sector has its own established valuation formula

Using two or more different valuation methods can help you come up with a range of valuations for your business.

These valuations, and the amount a purchaser is in fact likely to be prepared to pay, may be substantially lower than the value you place on your business.

Factors influencing value

The value of your particular business is likely to be affected by several factors:

  • Growth prospects - the better your growth prospects, the more your business is worth.
  • Risk - the smaller the business, the higher the risks tend to be and the less a purchaser will pay. Small, owner-managed businesses are particularly risky for a new owner to take over.
  • Special features - skilled employees, intellectual property or other special strengths of your business will increase its value.
  • Opportunities - your business will be worth more to a purchaser who can increase profits (for example by cutting costs, or selling your product to their existing customers).
  • Cost of financing - a purchaser is likely to pay less if their cost of financing the purchase is high.
  • Supply and demand - your business may be worth more if it is unique, or if there are several buyers looking to purchase that kind of business.

Achieving a high sales value

Do what you can to make your business as valuable as possible.

Plan ahead

The more time you have, the easier it will be to show your business in the best possible light. Concentrate on boosting short-term results to get the best possible profit record before you offer your business.

Think about timing

If possible, put your business up for sale when business conditions are good, and when business valuations are high. You’ll also be in a stronger negotiating position if you aren’t under pressure to sell immediately.

Reduce business risk

If you are over-dependent on a few customers, try to diversify your customer base. If one or two employees are crucial to the success of your business, consider ways to tie them in. If trade marks or other intellectual property are important to your business, make sure they are properly protected.

Sort out systems

Strong management information systems give the purchaser confidence that there won’t be any unpleasant surprises.

Stimulate competition

Market your business to attract potential purchasers. The price will be higher if there are competing purchasers.

Structure the deal

A structured deal may increase the price the purchaser is willing to pay. For example, you might commit to continuing to manage the business for a year or two, or link the price to future earnings - reducing the purchaser’s risk. Being willing to defer part of the purchase payment may also encourage purchasers.

Plan for tax

Making sure the deal is tax-effective for you can have a dramatic impact on the net value you receive.

Your legal adviser can offer specialist knowledge and negotiating skills to help you.

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