A diligent awareness of and adherence to the rules and regulations blanketing the LBM distribution industry may sound like an exercise in tedium. But what if such diligence and effort could increase the value of your company? When a buyer values an LBM business, they are primarily looking for two major categories of items. The first is the opportunity to grow and generate profits, which includes factors as diverse as customer loyalty, economic conditions in the market served, and the strength of the management team. A second major class of items does not lead directly to profits but can reduce the risk for the acquirer. Careful compliance with rules and regulations falls into this second category.
The first challenge is to be aware of all of the rules and regulations. Over time, an alphabet soup of administrations and agencies has been created. It is important to be mindful of regulations ranging from OSHA to the EEOC to the EPA, and an army of others. How can a business owner keep on top of this diverse and ever changing landscape of regulations? A good first step is to have an excellent attorney who has other clients in the LBM industry. Such an attorney’s experiences with one client can be invested in helping other clients.
Trade publications like ProSales and the various industry trade association meetings are another excellent way to stay ahead of changing legislation. Important legislative and regulatory changes are a common theme in these publications and meetings. Taking time to attend these gatherings gives you an opportunity to not only hear about pending issues but to immediately discuss with your peers how they plan to or are already responding to the changes. Such an investment in time working “on” your business is always worth a short break from working “in” your business.
Having surrounded yourself with the right advisers and put yourself at the forefront of regulatory changes by attending industry meetings, the next step is to properly implement compliance within your business. In any given area of important legislation or regulations, it is important to assign a point person in compliance management. Affirmative feedback mechanisms must be created for each compliance area. In other words, the managers have to proactively report compliance, rather than senior leadership assuming that no news is good news.
As an example, in the past it was not uncommon for companies that employed workers without legal U.S. residence status to simply refile the employee’s paperwork when their Social Security number was rejected. After a few high-profile situations, this behavior has radically changed. Today, it is more common for a company to be able to show proper paperwork for all non-U.S. citizen workers and the results of e-verify searches on all employees. Imagine the buyer’s sigh of relief at reviewing those documents rather than getting a nervous or evasive answer regarding worker status.
Bringing a compliant company to market is much smoother than selling a company with a little too much spirit of the Wild West. Buyers have told us that they slashed the size of their normal due diligence list when acquiring a business that has made regulatory compliance a priority rather than a grudging effort at the minimum level of compliance. It is easier to sell a highly compliant company because the purchase documents will not need to be riddled with what-ifs and economic penalties associated with a company’s existing noncompliance.
So, what should you do if your company isn’t already the picture of compliance? First, hire an attorney so that all of your inquiries will be subject to attorney client privilege. Then, work with that attorney and any other needed advisers to prioritize your noncompliance issues. It is critical that each issue be examined in light of the scope of the problem, the cost of addressing it, and the potential cost if the problem is identified in a probe or other inquiry. Needless to say, you should start with the problems that have the largest potential negative impact on the company, with worker safety issues at the top of the list.
Few companies are perfectly compliant. If some of your needed changes aren’t complete by the time you decide to undertake a sale, having a dollarized assessment of the scope of the remaining problems should keep them from detracting from your otherwise attractive company.