Soon to be taking on a new business or an active part in an existing operation?

Some of the issues you may want to consider to make the new regime flow well:

• Talk, communicate, chat, email, liaise, - keep everyone feeling as though they’re informed and part of things

• Ensure everyone knows the basics – where the offices will be, where to park and how to get there, who’s moving where and when

• How any surplus team members will be deployed

• Clear responsibility for maintaining client contacts and ensuring they don’t even notice things have changed

• Another group need to be responsible for ensuring suppliers are on top of the changes and ready to integrate new locations or systems

• Who is mission-critical and what is being done to retain them?

• Any disparities between terms of employment, bonuses or perks

Even if you’re not thinking of selling or inviting investment into the business take a few minutes to think about how you would fare if your business was subject to a due diligence review.

• Would your systems sustain your absence and the anticipated growth in activity?

• Would a history of strong financial management be evident?

• Can you demonstrate continued growth as well as opportunities for the new owners?

• Tax returns are considered second prize to an audit as they are third party verification; got those all sorted?

• From a buyer / investor’s perspective does everything in the business scream ‘under control’ – marketing, operations, finance?

If you’ve decided to pass your business onto family / staff or you’re heading towards selling, you will want to maximise the value of the business.

The list of things you can do to improve that valuation is long and been discussed here before so, here are a few more big ticket items:

• Put the sale or succession on the agenda – monthly meetings, accountant’s review, business plan

• Identify the personal expenses and assets in the business (we call them the ‘boats n benzes’!)

• Take a holiday – a long holiday – without being in touch.  Fix whatever falls apart in your absence so that you can disappear forever

• Get the tax and structure sorted – some structures are more advantageous on sale

• Focus on profits – hard profits beat blue sky every day

In the world of business sales and transitions we see a lot of negotiations.

What are your top tips for effective negotiations?

We recommend the two ears – two eyes – only one mouth approach.  Look and listen twice as hard as you talk.


 

Other suggestions include:

• Confirm your understanding of the matters you agree on and those you differ on

• Be clear about what you can offer up – it might be of little value to you but mean a lot to the other side

• Use a go-between / intermediary who isn’t emotionally or financially attached to the issue

• Break the issue up into smaller pieces collecting information and agreement as you go

• Make sure all of your team are actually on the same page – don’t assume!

• Map out worst case / best case / likely case – the process itself can be very enlightening

• Accumulate facts and hard evidence

• Recognise different negotiating styles – ‘no’ doesn’t always mean ‘no’

You must have plenty to offer this discussion – what negotiating strategies do you find work well?

Where do your will and your business intersect?

Hopefully in the cold hard light of day with all interested parties present and accounted for!

To avoid unnecessary angst it’s advisable to discuss your plans for the business in the event of your passing.

Please don’t assume that everyone involved – partners, children, advisors – has guessed your plans for the business and are in agreement.

If, say, the business is to be shared between children some important matters to consider:

• Are you sure your partner doesn’t want to run the business or indeed need to run the business if the children are still minors

• Do all the children want to be actively involved in the business?

• If not, how will the business be valued?

• How does the business sit with other assets e.g. cross guarantees, landlord / tenant?

• Are roles within the business clear or promotion paths plain?

• Has an ‘advisory board’ or a mentor been appointed?

What more can be added to this list from your experience?

We’ve just had a call from the liquidators of a business we were asked to value about 12 months ago.

We’re disappointed for the directors and staff that it’s come to this but not really that surprised. Even a year after the event the issues that really struck us included:

• The accounting records were not up to date and pretty messy

• The directors were not all on the same page

• A manager, who was not an equity partner in the business, was often asked to do the ‘dirty work’

• Director’s loan’s terms and conditions were not documented and some elements not properly recognised as liabilities of the business

• Despite deteriorating results the expensive trappings of boats and cars were fixtures

Good to see a few potential sellers putting their noses above the parapet!

If you’re waiting around to see if the business-sale market picks up use the time wisely by making sure:

• Everything that can be documented is documented – procedures, arrangements with suppliers, customer contracts,

• Key staff are happy with life at your business and not about to bolt off – you need continuity below you when you depart

• Marketing is pushing towards clearly articulating your competitive advantage.  Buyers need to feel the business is unique and a cash machine!

• You don’t take your foot off the accelerator – you need to demonstrate the business is full throttle ahead and really going places

• Long serving suppliers are being nurtured but you have new products / services on your radar to show the growth potential.

Confidentiality is a critical issue that influences everything we do in business sales and valuations. 

It’s plays out in a number of ways:

• Ensuring staff aren’t unsettled by tales of a pending sale or change of ownership

• Preventing competitors using news of a sale to undermine existing customer relationships

• Maintaining dealings with suppliers, sure of an ongoing stream of orders

• Customers may become unnerved by rumours of a change of ownership, concerned about continuity of supply

• Professional advisors, whilst likely party to the planned sale or valuation, may leak an anticipated sale to other parties in the hope of securing a buyer

Whilst keeping all of these balls in the air, there’s another side to this whole confidentiality issue that warrants some thought:

How can someone buy the business if they don’t know it’s for sale?

Where do you sit on this vexed question?

There’s no doubt that marketing and making sales is tough in any business.

If business buyers can see that there are great sales and marketing machines already in place and actively churning away then they will feel much more comfortable about the transition to them as the new owner.

So if you’re thinking of selling your business we’d recommend putting some effort into documenting your sales and marketing systems, collecting good examples and shining a light on your achievements with customers and prospects.

Some of these areas might include:

• Graphs and other visual aids showing sales / marketing / leads / customer service / online stats

• Key sales and marketing people (NOT the outgoing owner)

• Smarten up the website, including testimonials and recommendations

• Tidy up the customer list and enhance it with each customer’s tenure, avg sales per month, industry  etc

We’d like a $ for every time we’ve mentioned that the banks still aren’t lending and the sentence is barely complete when the response comes back something like “I know ! followed by a long story of the short shrift from what’s historically been a friendly banker.

Well we can whinge or we can work around it.

Some ways to address the funding issue might include:

• Sellers offering vendor finance – Ok so not an original thought but has the huge benefit of backing the business to be sold.

•  Buyers asking for vendor finance – you don’t ask you don’t get and the appetite for this possibility is being driven by necessity

• Package the business professionally – it is now even more important to present the business, projections and upside in a way that the financiers can easily understand.  The business case needs to hit their cash-generating hot buttons

• Consider other funding sources – angel investors want equity and a say but a smaller bit of a bigger pie has to be a consideration

• Staged Acquisition – consider an acquisition over time with a pre-agreed timeframe and terms to provide certainty for both parties