Built-to-Sell: Getting People Issues Right from Day One
How to avoid costly mistakes with worker classification, agreements, and payroll before they derail funding or acquisition.
In collaboration with Danielle Moore, Keia Atkinson, and Brett Owens from Fisher Phillips.
When founders think about preparing their company for funding or acquisition, the focus usually goes to product, metrics, and growth. But here’s the truth: buyers and investors look just as closely at how you’ve set up your team.
And one of the biggest deal-killers? Employment law mistakes.
Things like worker misclassification, sloppy agreements, or inconsistent payroll practices don’t just create legal headaches; they can derail a term sheet or add painful liabilities to a deal.
Here are three areas every founder should tighten up early:
1. Classify Your Workers Correctly
Misclassifying employees as independent contractors is one of the most common (and costly) mistakes startups make.
What to do:
Default to W-2 employment unless you can clearly justify contractor status.
Learn the tests in your state (for example, California’s “ABC test”).
Review your classifications annually as roles evolve.
2. Get Offer Letters and Agreements in Order
Investors want clarity and enforceability.
What to do:
Keep every signed offer letter and agreement digitally organized.
Use Proprietary Information and Invention Assignment Agreements (PIIAAs) so IP belongs to the company.
Make sure offer letters spell out role, compensation, start date, at-will status, and equity.
3. Keep Payroll and Wage Practices Compliant
Late paychecks or unclear classifications aren’t just frustrating for your team — they can trigger lawsuits and audits.
What to do:
Pay all wages (salary, bonuses, reimbursements) on time.
Track hours, meal breaks, and rest periods for non-exempt employees.
Double-check whether roles are exempt or non-exempt under federal and state law.
Closing Thoughts
Startups move fast. It’s tempting to “figure out HR later,” but these are the exact issues that surface during diligence. Cleaning them up early means fewer distractions when it’s time to raise or sell.
This article was written in collaboration with Fisher Phillips, an international law firm representing employers in labor, employment, and immigration law. You can read their full original article here.
This is Part 1 of a 4-part series we’ll be sharing weekly on how to get your startup acquisition-ready. Stay tuned for Part 2 on equity, IP, and protecting your company’s core value.