Thursday, November 11, 2010

Choosing a Payroll Service - Avoiding the Acquisition Bulls-Eye

In light of the recent acquisition of Perquest's client base by ADP (not an uncommon activity by them), the thought came to my mind that many small to mid-sized businesses may not be aware of what the 'Acquisition Target' warning signs are before they make a move to a new payroll service.

As their 'new' payroll service brings them on-board, it is typically a move off of ADP or Paychex and toward a smaller, more customer-centric service, which is great.

Downside?  When the 'Acquisition Target' payroll service bureau sells - the payroll clients go right back to the service they left, and ADP is the most likely company to be doing the acquiring.

This generally puts a sour look on the average business owner's face.

So, what are the warning signs that your new, smaller, friendlier payroll service may have a secret 'For Sale' sign taped to the back of their door?

Three Core Points:
#1 Investors Own the Company
#2 Previous History of Acquisitions in C-Level folks' Resume
#3 Abnormally Rapid Growth

To Point #1:  If investors own the company, they are likely in it to turn & burn the investment.  Once they see a tidy profit to be made (or - in the case of Perquest, a big loss to avoid), they are out - and so are you.

To Point #2:  If the management team has had previous history of their companies being acquired, it has to be very tempting to build the business specifically as a target for acquisition.

to Point #3:  Building on #2, if the management team is tempted - they may throw away money, acquiring clients by using deep discounts.  This bloats up the numbers, but the clients who got a deal may not feel so good about it when they are sold to ADP.

So, as a business owner, here are a couple of questions to get you started as you avoid a potential return to ADP or Paychex:
  • "I love your solution for my business' payroll and HR needs.  Can you tell me about your company's history?"
  • "How many clients do you have?"
  • "How many new clients do you bring aboard each year?"
    As always, moving your payroll to a new service can have many implications, including tax related issues.  Get as much detail as you can about the transition process, and don't be afraid to ask pointed questions.  If they don't have answers (or can't make a quick phone call to find out) - keep shopping.

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