Sep 24, 2020
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Middle Market M&A: Making Money After Your Sale — Part 5

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At the beginning of this series we identified that some sales of businesses are structured in a manner that the sellers proceeds vary with post-deal performance in their firms. With this type of deal you will be strongly motivated to determine the buyer succeed. Next we observed segregating your firm into functional areas: business development operations finance and infrastructure

 

Jack Borelli of best-practices firm KnowledgeConnect gave us key themes that his firm focuses on with its Fortune 500 clients. Whether you re selling a company these are the varieties of things you want to be doing. We then took the tune-up idea that Mr. Borelli observed and applied it to the sale of your firm

 

There are professionals – called exit planners – who specialize in the process when it specifically relates to the sale of a business. Both primary certifying organizations are the Business Enterprise Institute and the Exit Planning Institute. We then talked with PJ Makhfi who told us that integration of your firm with the buyer s firm really begins before the deal even closes

 

Integration of certain functions within your firm is obvious. Such functions would include operations purchasing shipping etc. Integration of alternative functions is less obvious. To illustrate health insurance plans retirement plans PTO policies etc. I lately attended a meeting of the Chicago Chapter of the Alliance of Mergers & Acquisition Advisors

 

At the meeting the CEO of a food services company dissected his firm s acquisition of another business. Both firms are eight-digit-revenue firms. The discussion started with acquisition strategy and moved during the phases (just as PJ Makhfi had described in our last installment). As the conversation moved into due diligence – specifically financial due diligence – things became interesting

 

Consistent with this CEO the objective firm had the main sophisticated implementation of QuickBooks he had ever seen. While that sophistication meant rich data it also meant huge volumes of data. . . and the volume made it somewhat difficult to get at. Which brings us to the next topic. . . Recently life has moved to digital format

 

And the big question becomes how a buyer of your firm is going to include all your digital assets into its digital system. But taking a step back what are your digital assets? And how do you manage them? PROMOTED Grads of Life BRANDVOICE | Paid Program
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An Important Step To Success For Young People Starts With #WhyApply On September 18 Your digital assets might include branding patents trademarks copyrights images designs trade dress and the like. But in the broadest sense they could include other aspects of your firm that you ve digitized

 

They could include documentation of your contact relationship management (CRM) system. They could include documentation of the workflows embedded on your CRM system. They could include documentation of your manufacturing processes. Every document you’ve is likely in PDF format. Even if you run a sheet metal shop your firm is far more digital than you realize

 

In the case above the objective company had incredibly rich data in QuickBooks. That QuickBooks data contained valuable information on customer preferences and product costing. That information as a standalone asset is worth something. We don t must go any further; you get the point. So how do you’re making it easier for your buyer to include your digital stuff into its digital stuff? When information was still in paper form you will have two challenges

 

First how is all of this knowledge organized? Where you will look forward to finding a particular file? Second when it s not there has it been intentionally filed in another drawer? Is it accidentally filed in the wrong drawer? Or has someone borrowed the file? When information went digital you didn t worry about losing a file

 

But how is all of this stuff organized remained. More times than not when a company went digital it simply created an electronic file cabinet system that mirrored its physical file cabinets. Rather than a physical bucket of worms it has become an electronic bucket of worms. Your team s current operations and your buyer s integration efforts would be frustrated

 

and that s going to price you. . . big time. That s where digital asset management or DAM comes in. Simply put DAM is a system of organizing your electronic information in a manner that’s easy enough for a caveman to find something. To achieve such ease of use a DAM system doesn t must be an elaborate set-up that a Fortune 500 company might use

 

Depending at the needs of your firm it maybe as simple as naming individual files in a particular format (or using tags ) so that they re easily identified in a search. In brief you don t must know wherein drawer something is filed. To add perspective firms might use Google Drive as a platform for a DAM system

 

Dialing in the right variety of DAM system for your firm will make your team s life easier and could help you buyer s integration of your data. In this subject I ve been through this myself. I can speak from experience. Fifteen years ago my team had about 36 lateral file cabinet drawers of physical files

 

That s when we started the process of converting documents over to PDF format. And we made the mistake of converting over to an electronic bucket of worms. Then we converted over to a searchable naming format. I truly know your pain. For this installment in the series we talked with Matt Crandall of Crandall Consulting Services about digital assets

 

He says that each firm needs to have a digital asset management (DAM) system. While it can sound obvious so many companies still don’t have a handle on their digital assets which for strongly branded companies could be some of their most valuable assets. Filing cabinets and shared drives with content don’t a DAM make

 

Select a DAM that fits the particular needs of the company or division in the company and begin managing your assets. Mr. Crandall s point of that fits the particular needs of the company is very much along the line mentioned earlier that you don t must make this so complex that it s not worth the effort

 

As a seller whose proceeds depend at the buyer s success you ll buy into the idea of having a DAM system. But Mr. Crandall notes that implementing a DAM system could be disruptive and team members may have doubts. You are able to t simply lay the responsibility of implementing a DAM system on a single person

 

As the team s leader you would like to convince your management team and your worker-bees that life would be better despite any disruption that occurs during implementation. You ve got to get them through implementation. Once you re at the back end your team will actually see how life is better

 

But during implementation you would like to be the cheerleader the evangelist or the attack dog. Mr. Crandall says that over 60% of DAM initiatives fail because leadership doesn t lead. Another facet of digital assets that Mr. Crandall notes relates to legal rights. Of course a customer list is something every business wants to protect

 

But consider again the food service company acquisition mentioned above. The QuickBooks data had rich information about customer preferences and product costing. Are you protecting your rights with respect to that information? Does your team know whether you’re protecting your rights with respect to that information? Have you taken the necessary steps to protect your rights with respect to that information? Now apply the idea for your digital assets as a whole

 

Mr. Crandall s final point regards governance. Management of your digital assets really can t be a top-down affair. It should be participative. Each functional part of your firm needs to have input. There should be a feedback mechanism for individual team members to make recommendations. If you don t have buy-in from your team your system will revert to chaos and anarchy

 

At the end of the day the cost of your firm would be driven by what your team does and how easy your buyer will be able to move your data files over to its data system. For a free PDF copy of my book about tax savings when selling your business please email me at todd@integratedwealth

 

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