7 Strategies to Supercharge Your Business Decision
Anthony Pollock
I work with purpose driven business owners to step up, create and realise the equity value of their business.
How data analysis and forecasting can supercharge your business decision.
Finance Specialists are vital to the success of a business.
I was approached by a father in my sons’ class at school, a number of years ago. He worked for a company based north of Brighton. The company was undergoing some changes and the division that he was CEO of was up for sale since it was peripheral to the core business. My friend wanted to buy the division, but he needed someone to help him with his business plan.
For the buyer of a business, professional advisers act as an invaluable buffer in what is an emotive process. They will also help you with paperwork and negotiations. Don’t attempt to do this alone.
Financial Forecast
I sat with my friend and put together a three-year financial forecast for the business, based on the information that he provided. We discussed and talked about the key assumptions in the forecast and agreed that they were soundly based. The finance director of the seller recommended a corporate finance company (CFC) that we could contact to raise the necessary funds to buy the division.
We provided financial information as requested by the CFC which were followed by several meetings to finalize the business plan. The CFC prepared the business plan based on the information provided. The CFC spoke to their contact in the Venture Capital industry. Subsequently, there were meetings with a Venture Capital investment company that offered to finance management buyout. The process from completing the business plan to the offer from the venture capital investment company was about one month and from the offer to completion was about four months.
What does it mean when you buy a division of a company?
When you buy a division of a company, you effectively buy the staff and the contracts and the relationships. You do not buy any of the parent company’s admin staff, accounting systems, premises, IT systems, telecom systems, banking facilities or professional relationships. You have to set-up a completely new back office supporting the company’s sales, marketing, and operational activities. Although my client bought the business of a division of a company, the business still had to find offices and equip them, from fitting carpets to installing computers and office equipment.
We spend a couple of months, equipping the company, occupying temporary offices first and then found some suitable offices a few months later and moved. We used furniture that we already acquired plus new furniture as necessary. We had to put in ethernet systems, telephone systems to support our worldwide work. We were a global company trading around the world, servicing clients with software and support and needed systems reliable systems which became the backbone of our company.
We developed and implemented a new management reporting system. We built new relationships with customers and suppliers. We had sales reps and employees in America and subsequently had to set up a bank for payroll and supplier payment purposes.
A significant amount of complex accountancy matters and transactions were required as we relationships with US Customers and suppliers. As a global business, we needed to support the sales team as they travel around the world as well as the operations delivery team who installed the kit and made sure it worked to the client's satisfaction.
It is vitally important that the back office and support systems are set up and function properly.
Cashflow Monitoring and Cashflow Projection
One of the early issues we had to deal with was that the assumption on project cash flow turned out to be wrong. We were told that the projects were largely self-financing on a cash flow basis. But several projects were cash negative, which poses significant challenges to the finance team.
The issues around cash and cashflow required the development of significant day to day and month by month cash flow projections and cashflow monitoring. The management of cash was vital as we were very short of money and needed to deliver to the project milestones to get paid.
Often, we had conversations with the delivery team. What do you need to do to reach and achieve and sign off of the next project milestone? Each milestone created an invoice and a cash receipt? This created a big major focus both for the project management team and the finance team?
Unforeseen Circumstances
We had a slight hiccup in that the previous parent company had been developing a new piece of kit that we were planning to use with our customers. The piece of kit was expected to be available within 3 months but was in the end 4 years late. That created major headaches for the CEO who had to obtain a different piece of kit as an acceptable substitute for the kit. That also took the best part of a million pounds off the projections as we had planned to be able to sell this kit to third parties which we now obviously couldn’t do.
Developing a new sales pipeline
Another aspect of this project was that we won all of the work that had been in the pipeline when we took over the business. But developing the new pipeline and winning new business proved much harder than we originally planned.
We had to develop a pipeline of monitoring systems together with plans as to how we are going to address the market and win business. Particularly how we were going to compete with the market leader. We had assumed that our technical advantage would push the business in our direction but we discovered that though the technical people whom we were dealing with were very supportive of our product the major competitor had very strong relationships with the decision-makers at a board level and since those relationships were very strong we did not get all the business we expected, even though we were technically the better product.
Requirements of early-stage businesses
The company won projects and continued to win new projects. The lesson from my perspective is that early-stage business requires more hands-on management than initially expected and that assumptions made at the planning stage are wrong or change through no fault of the original planners.
There are a lot of unknowns and left-field events that occur that couldn’t or wouldn’t have been predicted in advance and you need to be able to react quickly to unforeseen and unexpected circumstances.
The assumptions that are built into the financial forecast need to be closely monitored and the financial implications of these changes calculated.
The consequences of those changes need to be identified, clearly, quickly, and early. This will allow the CEO and management team to take clear responsibility for those changes and what they mean. Especially if that means that further loans or further investment have to take place because management and CEO’s can at times bury their heads in the sand and not address the critical issues that need to be sorted out.
#ceo #cashflow #business
I'd add: Make sure there is an effective, scalable and buyer-focused sales funnel in place. If you're not sure what I mean please just ask me.
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4 年Very well captured the essence Anthony Pollock
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4 年Ohh I like this. Especially developing a new sales pipeline. Very solid thinking
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4 年Very interesting!! I'm not in the business of acquiring a business, but it was really insightful to see what professionals consider when doing so.
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4 年Great post Anthony! You make an awesome point about unforseen circumstances. You never know what may occur during your process, but being prepared for it is key. Thanks for sharing.