23 Nov Always be prepared and ready to sell your business
You never know when someone will approach you to acquire your business, it’s generally unexpected. However, although you may not have been expecting the approach, you should always be prepared. In short, your company should always be running in tip-top condition. When you are focusing on selling goods/services and growth, it may seem hard or a waste of time, to address things that need to be done to ensure that your company is as efficient and scalable as it can be. Running a business is not easy, keeping it constantly ready for sale is another stress, but worth it in the long run. Here we discuss five things you can do to remain ever-prepared for a business sale.
Maintain and update legal documentation
Having appropriate legal documentation on hand is standard business practice. However, preparing these documents with a potential sale in mind is a step often missed. Always make sure you have the documentation of your corporate formation, operating agreements, partner agreements, investor agreements, loans, vendor agreements, employee agreements, and incentive agreements in place. Here are some tips to streamline the process.
- Make a list of all contractors, vendors, and employees and make sure that your relationships are documented properly. This can be handed to a potential buyer to give them an understanding of your operation;
- Draft a one-page Memorandum of Understanding (MOU) during the initial stages of forming any relationship with strategic partners;
- Break the old school habit of stiff agreements that contain pointless terms. Keep them simple; and
- Maintain some consistency in all of your agreements. If you compile a completely new agreement every time, you will waste time and money and could confuse a potential buyer.
In modern business, everyone should go paperless. It’s not just the environmental benefits, going paperless makes you more streamlined, efficient, and saleable. In short, scan everything and move your files to ‘the cloud,’ preferably in some type of data room. This may seem like a pain, but it will allow you to share documents more easily; with your lawyers, clients and a potential acquirer. No one wants to examine binders and binders of paper contracts…and yes you will save some trees in the process.
But going digital doesn’t mean you just dump everything on a hard drive, or into this mythical cloud. Best practices in the physical form remain in the digital sphere. Your files still need to be uncluttered and organized. This can actually be harder digitally, as you can’t see the build-up of paper. Here are some tips:
- Go through each piece of paper you have, remove everything that is unnecessary. A general rule: if you have not used the information in the last 5 years, and it’s not a legal contract, bin it;
- With the remaining files, plan an organizational strategy;
- Scan everything and move your files to ‘the cloud’, into folders that follow your devised strategy. Use a platform like Google docs or Dropbox. Give your entire team access to the files they need to have access to;
- Within each department’s files, create a master account list where you can store all vendor’s contact information, account passwords, and other important information; and
- Honour the work you have done by maintaining clean and orderly files. Too many cooks can get messy, so assign one manager to each folder.
Keep Your Books Current
Not monitoring financials and forecasting is like trying to drive a car without a steering wheel. Not only is it illegal, it’s fairly stupid. More so, your team needs to know where the company is heading, why you are making the decisions you are making. Financials help justify your actions.
I recommend keeping monthly or at least quarterly financials up to date. Annual reporting is sloppy and designed for large corporations with hundreds of departments. Not seeing where your money is coming from and where it is going kills any chances of proper financial planning for the future. More so, if you are approached for a sale, you have to have up to date numbers on hand. Here are some tips:
- Outsource to a local financial services firm to maintain your financials if you don’t have the resources in-house;
- Review these financials, on a regular basis, so you are always up to speed with your numbers;
- Avoid annual budgets, instead, maintain a rolling forecast. Yes you will have an end of financial year, but that shouldn’t be your only goal;
- Set up monthly meetings. Annual plans grow inaccurate, in particular, if you are growing fast. In addition to keeping you up to date, it keeps managers accountable for their results in a real-time manner; and
- Document your financial goals, and compare actual and forecasts on a monthly basis. This can be by department, and covered off in a 30 minute meeting.
Define Roles & Responsibilities
Well-documented roles and responsibilities keep your team happy, and helps prepare your company for a sale. Accountability is king. If something goes wrong or something falls through the cracks, everyone needs to know whose shoulders it fell on. Knowing who does what will help in discussions with an acquirer, they will be thinking who they could let go / who they need to hire. Here are some useful tips:
- Create a team Orgchart with position title and responsibilities. Where applicable, add the name of the person doing that job. Don’t create a position for each person on your team; create the roles and assign people to them. If there is a gap, this gives you an idea of who to hire next, which is also an important piece of information for a potential acquirer;
- Have your team create their own responsibilities and review them. This will not only make sure they are aware of their responsibilities, but also help identify an overlap in perceived responsibilities; and
- Don’t write a job ‘bible’, it’s a waste of time. In today’s age things move fast, job titles and responsibilities should change frequently.
Procedure & Process Documentation
A properly documented company is saleable, efficient, and able to learn from its mistakes. When everything is running smooth, these documents will not get a look. But if you sell, and you hand over your operations, the company will want these. Keep them up to date and relevant. Here are some tips:
- Identify recurring responsibilities, this is a procedure. Either capture screenshots, or take photos on how this procedure is completed and by whom. Always include a section of ‘Tips’ that will help future users learn from past mistakes. Keep these digital, not in paper form. Procedures are adapted, and printed documents lose relevance;
- Bring the team together and ask them questions about each responsibility, and outline it together. This gives your team ownership of the process. Make them a part of the creation of it and they will use them and keep them updated. They will know there job better than you!
- Put all of the procedures in a single master document. Because it is hosted on your cloud, it is accessible to anyone, all the time; and
- Whenever a mistake is made or something falls through the cracks, identify what went wrong and revisit the procedure to see if it was documented properly.