Sell your Business E-Book Extract Part 7 – Systems and Documentation

Posted on Sep 6, 2015

In the past, many small business owners argued they were too busy running the business to implement costly internal systems and procedures. With powerful and affordable accounting and management software products now widely available, even a micro business can produce detailed management information in a simple and timely manner.

 

Systems and Documentation Intro

In the past, many small business owners argued they were too busy running the business to implement costly internal systems and procedures.  With powerful and affordable accounting and management software products now widely available, even a micro business can produce detailed management information in a simple and timely manner.

If a business does not appear systemised the business value goes down, so it is important for entrepreneurs thinking of selling to implement systems that will have the added benefit of increasing productivity and profitability in the lead up to the sale.

During the due diligence phase, buyers begin tentatively but then quickly form a judgement about whether all the information provided is credible and whether the business has a good chance of continuing the income into the future.

The sale process will be delayed if the necessary documentation is not in place. The seller needs to contact all these agencies at “Completion” and transfer ownership to the new party. (Note: “Completion” refers to the final purchase of the business based on the signing of the purchase agreement and the handover of the agreed purchase price of the business.)

Human Resources

A buyer looks for evidence that the business has a team of people in place who are capable of running and growing the business without the involvement of the previous owner.  This makes strong human resources systems vital to a sale.

Many small businesses are only as good as their management and staff, and prospective purchasers know this. Where the business is a service industry, the value of trained and committed staff is a major component of the deal, and it is important that the workforce is motivated and accountable.

Businesses also shouldn’t appear as if they are too heavily dependent on the involvement of the owner. If this is the case, more responsibility and autonomy should be given to senior staff as you prepare to sell, so that when you step out of the picture the business doesn’t fall apart. A business will be more attractive to prospective purchasers when it can show that its owner is not critical to the operation.

The business should have job descriptions that include key performance indicators (KPIs) for each role within the business.  A job description covers why a job exists, what skills or qualifications are required, what are the mandatory and supplementary functions of the job, what the objectives of performance measurements of the job are and how they link to the organisational goals for the company. Setting KPIs for each employee means the business owner can better monitor performance.

There should be a signed contract with each employee and evidence of Performance Reviews and their outcomes on file.

All Intellectual property developed within the business should be signed off by employees and contractors.

Company Policies and Procedures should be documented and a procedures manual becomes a useful document when inducting new employees.  There should also be a current Organisational Chart showing the title of each position and connecting lines showing who is accountable to whom.

Other HR issues a buyer will consider are staff turnover, how employees will react to a sale, whether management is respected and employee morale.

An owner should create a succession plan that looks at all tasks he or she performs in the business and identify people who could take over, and what level of training they would need to do so.  New salary and commission packages should be considered for people taking on new responsibilities and a timeframe for the delegation of the owner’s areas of responsibility calculated.

 

Marketing Systems

When a potential buyer looks at a business, it will be evaluated by whether he or she can replicate the model to continue making money, and the way to judge this is to review a business’s marketing and sales systems.

Small businesses often market in an ad hoc manner and fail to measure the success of their activities, so a comprehensive marketing plan is an asset when negotiating.

A marketing plan should encompass market research, marketing objectives, marketing strategies and monitoring and control processes.

A good starting point for market research is the government statistic agency in each region of the world.

United Kingdom

Office for National Statistics, ONS

USA (USA)

FedStats

Energy Information Administration

National Center for Education Statistics

National Center for Health Statistics

U.S. Bureau of the Census

U.S. Bureau of Labor Statistics

U.S. Department of Agriculture, USDA:

Economic Research Service

U.S. Department of Commerce, STAT-USA:

BEA, Bureau of Economic Analysis

International Trade Administration

U.S. Department of the Interior/U.S. Geological Survey

U.S. Department of Justice, Bureau of Justice Statistics

U.S. Department of Transportation, Bureau of Transportation Statistics

U.S. International Trade Commission

Canada

Statistics Canada

Strategis – Industry Canada On-Line: Micro-Economic Research and Statistical Analysis

New Zealand

Statistics New Zealand

South Africa

Statistics South Africa

Australia

Australian Bureau of Statistics (ABS)

Most of these agencies can provide economic, environmental, industrial, demographic and regional statistics.   They also may provide online information, subscriptions and statistical training.

Fundamental to a successful marketing plan is the writer understanding the needs of the business’s customer base.  This includes characteristics such as gender, aspirations and an ability to pay.  A marketing plan needs to analyse the size of the market, where it is located, and how it is being impacted by technology, attitudes and social and economic trends. The market can be further segmented into customers with similar attributes like ethnicity or gender.

A marketing plan should address direct and indirect competition.  This information can include their product offering, their reputation, their strengths and weakness and pricing.  A competitor’s website is often a good starting point for competitive intelligence.

A SWOT analysis helps set marketing objectives.  A SWOT analysis looks internally at the strengths to build on and the weaknesses to overcome, along with external opportunities to exploit and threats that need to be managed.

Marketing goals cover what products or services a company offers to different market segments, the key benefits a company offers, what the company’s competitive advantage is, and what targets need to be met.

Marketing goals need to be specific, measurable, achievable, realistic and time bound.  They should encompass “The Four Ps”, – product, price, promotion and place.

Marketing is an expense to the business and as such marketing activity needs to be closely monitored to ensure the business is getting value for the investment.  For example, there should be a portfolio of past sales letters and what response they elicited. There should also be a portfolio of advertisements with information on where they were placed, the enquiries they generated and how many of these were converted into a sale.

 

Customer Relationship Management (CRM)

The driver of any business is sales.  Today, many small businesses use CRM software to keep track of the entire sales process, including forecasts, sales pipelines and sales.  It is also an effective way to keep a sales force accountable

CRM lets a company use what it knows about its customers to target them using personalised marketing to obtain a higher response rate, and today CRM systems can be integrated with accounting software and other computer systems such as MS Outlook.

A review of a CRM system will be one of the key ways a prospective buyer will assess the strength of a business’s customer base.  The database should correlate with other sales figures provided and needs to be clean and contain unique records.

Contracts

Any potential purchaser is going to want to review all the contracts that the business has signed. If it is a company share transfer, the new buyer will have all the liabilities of these contracts transferred.

Customer contracts

These include all contracts that bring money into the business or are part of the revenue obligations. This includes strategic alliance contracts, sale or distribution contracts, product contracts, support/maintenance contracts and warranties relating to plant and equipment.

Supplier Contracts

These include all expense areas such as leases for property, equipment or motor vehicles, insurance policies, web hosting, cost of goods and other suppliers.

There are four types of warranties.  Voluntary Warranties are given by manufacturers, resellers or service providers to demonstrate they stand by their product.  Extended Warranties give a manufacturer’s warranty over a longer period.  Specified Warranties are those imposed by a state or territory for a particular product such as used cars. Implied Warranties are those imposed by the Trade Practices Act and fair trading laws.

Buyers will want to see evidence of insurance policies covering public liability, vehicle, fire, burglary, professional indemnity and sickness.

 

Financial Documentation

Well-documented financials are critical to a successful sale. Sellers need to have copies (where applicable) of the last 3 years tax returns for the business and up to date BAS statements.  Buyers will also want to check depreciation schedules for equipment and furniture and fittings, and check the book value, market value and replacement value of fixed assets.  At the time of the sale all equipment needs to be in good working order.

Sellers also need to produce a reconciliation that includes “Addbacks”. “Addbacks” are all the personal, or one off expense items that are included in the tax returns. It should also include all payments and wages payed to the owner (and associated personnel.)  This then provides a net payment of the return to the business owner. Sellers should also add back depreciation which show the cash return to the owner

This figure of profit before tax plus “Addbacks” is often used as valuation tool. Most buyers will also demand that a market payment for a business manager also be added back.

When you are negotiating the sale of the business, sales by customers and products and detailed management reports are necessary to demonstrate how the business has been performing at the micro level.

The due diligence process will check that all superannuation obligations have been met and long service leave entitlement may become an adjustment in the final sale price.

Management Systems and Forecasts

Businesses are valued based on the amount of future income that they may be able to generate factored against risk. Therefore the more credible a forecast is, and the more reliable it is seen as a projection for future income, then the higher the likely value of a business at valuation.

It is good to provide a 12-24 month forecast, a five-year forecast and a scorecard.  If your forecast is non existent or seen as non reliable then it is likely that a business will be valued on historical earnings and this may lead to a downward valuation.

Intellectual Property

There needs to be a register of all the business’s trademark and patent documentation.

If it doesn’t exist, the vendor should create an IP Register that details logos, trade marks, patents, software copyright and designs.

If there is a website or websites, there needs to be a list of all the domain names and where they were registered. This is important because when a business is signed over to someone else, the seller will likely be assigning the rights of all the websites, trade marks and patents.

Company Documentation

The company incorporation documentation, which includes the Memorandum of Incorporation, the Share Registry, personal details of all shareholders, registered business name and an Asset Register will need to be available for review during due diligence.

Stock Issues

A buyer will want to check the value of existing stock to confirm it is not old or unusable.  They will also want to check there is sufficient stock on hand and that regular and accurate stock takes are carried out by the business.

 

Credibility and JustificationsA business owner might know how good the company is, but this needs to be communicated to potential buyers. A seller should make sure to print out any credible customer testimonials and awards or recognitions, all of which reflect the company has a good reputation.

If the business actively is involved in community programs, this is worth highlighting. Also, a seller should put together some case studies of high profile companies that have used the business’s product and saved time or money.  Case Studies can also be placed on a company’s website to create public relations activity.

Although there is a time commitment needed to enter business awards, it does add to the credibility of an organisation.  At the very least, it is worth investigating local business awards.

Veteran league backup Ryan Fitzpatrick will start Sunday, only after Case Keenum was released to make way for New England Patriots QB Ryan Mallett. The move reeks of disorganisation at the most important position, with the addition of Mallett appearing to be a last ditched attempt to salvage the season. 4. New York Jets defense: Sure, the real problem for the Jets was that quarterback Geno Smith had his first truly atrocious day with three turnovers (two interceptions and a fumble) in the first half. This mechanism unhooks by grasping this yoke here firmly with one hand and pulling it out on the side of the brake here. That’ll wholesale football jerseys china allow this type of brake to open up. During the course of this call, we may make forward looking statements regarding future events and the future financial performance of the Company. We caution you that actual events and results may differ materially. According to Joshua Spiegelman, managing director of Mindshare Spotlight, “a significant portion of fans are working professionals with buying power”. The average gamer is 36 years old, with a household income of $76,000. The baby Ishamel who was with her cried and his foot touched the ground. Water came out from the ground. ESPN (NYSE:DIS) is seeing the brunt of the Cheap NFL Jerseys decline, with ratings down 17% to an average 11.3M viewers. That includes a Monday Night Football broadcast Wholesale China Jerseys up against the first Clinton Trump debate; excluding that, pro football at ESPN is down 11%. Employment conditions Cheap Ray Ban Sunglasses can include issues concerning personnel policies and practices or any conditions that affect employee work environments. Once a union is formed, management personnel are obligated to meet with union representatives at reasonable times to address issues affecting employees in the workplace.. The field is 360 feet long. It has lines at the 60 foot length from both end lines. The team is awful but you’re not there to see if the loveable Cubbies can pull out a victory. You’re there because you want to experience the feeling of a game at Wrigley Field. The only exceptions to this act were given to the Native Americans but only if their culture had already used eagles in many of their customs and ceremonies. They are still not allowed to kill but they can possess the feathers and the talons for ceremonial purposes only. Mark the filled dough with a ravioli marker (ravioli rolling pin). Cut ravioli out using a ravioli cutter. Cheap Jordans Rugby is played and watched by the middle and upper classes men who “know how to behave”. They respect the referee because, unlike soccer stars, they are not spoilt, uncouth, overpaid prima donnas (or morons) given licence by a celebrity culture to trample sportsmanship into the turf.