RizAdmin - Rizolve Partners

Implementing a World Class Sales Strategy

Posted on October 20, 2023November 9, 2023 by RizAdmin

When we first met our brand-new Vice President of Sales, the CEO of the company had just laid out the strategic plan to the executive team, hinging on the necessity to implement a world class sales strategy to deliver the revenue necessary to fulfill the company’s aggressive growth objectives!

No problem: In this final installment of our 3-part series examining the key drivers of successful revenue growth that create real value, we will build on the four key components of the Sales Plan (outlined in Part 2) that included:

– A documented, well-understood sales strategy;
– A defined sales process and methodology;
– Ongoing sales training and development; and
– The effective use of data analytics and readily available technology.

In this article – Part 3 of the series – we will explore what makes for a truly effective sales strategy to deliver on the company’s objectives.

Key Elements of a World Class Sales Strategy

Best-in-class companies implement sales strategies through a combination of effective planning, execution, and ongoing refinement. While specific strategies can vary depending on the industry, target market, and product or service, there are some common elements that top-performing companies tend to incorporate into their sales strategies.

Let’s explore some key aspects of how they achieve this…

Market Research:

Best-in-class companies invest heavily in market research, gaining a comprehensive understanding of their target market. This includes in-depth knowledge of customer needs, preferences, and pain points. Legendary management guru, Peter Drucker, notes that “Quality in a product or service is not what you put into it, it is what the customer gets out of it.” So, understanding your customer requirements is imperative.

They also conduct rigorous competitive analysis to identify strengths, weaknesses, opportunities, and threats. Continuous monitoring of market trends and changes allows them to stay ahead of the curve.

Clear Sales Objectives:

Setting well-defined and measurable sales goals and targets is a key component of any plan. Tracking specific Key Performance Indicators (KPIs) to measure progress and ensure that their sales objectives align with broader business goals allows for monitoring of achievements.

Customer Segmentation:

Segmentation of the customer base enables the tailoring of approaches to different customer groups to align with their needs more specifically and effectively. This involves the creation of detailed buyer personas to understand customer demographics, behaviours, and motivations, allowing for more personalized interactions.

Sales Team Training and Development:

Ongoing training and development programs are a priority. They equip the sales team with the knowledge and tools necessary to excel in their roles, ensuring they stay up to date with industry trends and product knowledge.

Sales Process Optimization:

Salespeople are quick to point out that their industry is specialized, and that you need unique knowledge and experience to be successful. Brian Halligan, CEO of HubSpot, states “In sales, it’s not about what you sell; it’s about how you sell it.”

The development of a clear and effective sales process that guides salespeople through each stage of the sales cycle is a key goal that allows for future scalability. Regular refinement and optimization of the process based on performance data and feedback ensures continued efficiency.

Technology and Tools:

Utilization of CRM (Customer Relationship Management) systems is common. These systems help manage customer information, track interactions, and automate routine tasks. Additionally, they implement sales enablement tools to provide sales teams with the right content and resources at the right time.

Fortunately, these tools are readily available and have come down in price and complexity so that any size company can take advantage of these benefits.

Sales and Marketing Alignment:

There’s a strong focus on collaboration between sales and marketing teams. Shared goals, messaging, and strategies are developed to generate and convert leads effectively. This alignment helps prevent the disconnect between the two departments which can sometimes hinder sales efforts.

Lead Generation and Management:

Effective strategies for lead generation are put in place, encompassing both inbound and outbound channels. Lead nurturing processes are established to move prospects through the sales funnel, ensuring that potential customers receive the right information and support at each stage.

Performance Metrics and Analytics:

Regular measurement and analysis of sales performance and pipeline data are integral to decision-making. These companies use data to make informed decisions and adjust the sales strategy as needed, ensuring a data-driven approach to sales.

Customer Relationship Management:

Building and maintaining strong relationships with customers is a priority. These companies provide excellent customer support and post-sales service to foster loyalty and encourage repeat business. As Sam Walton, founder of Walmart stated, “The goal as a company is to have customer service that is not just the best but legendary”.

Incentives and Compensation:

Incentive and compensation plans are designed to motivate the sales teams. They reward top performers and align compensation with sales goals, ensuring that the salesforce remains highly motivated.

Feedback and Iteration:

Best-in-class companies actively seek feedback from the sales team, customers, and other stakeholders. They continuously iterate and adapt the sales strategy based on this feedback and performance results.

In the 1970’s no company demonstrated this more than Harley Davidson, relying on key feedback mechanisms to rescue the company from near obscurity to become the iconic brand it is today. “The more you engage with customers, the clearer things become and the easier it is to determine what you should be doing.” – John Russell, President of Harley-Davidson

Risk Management:

Taking risks is a requirement in business. Mark Zuckerberg, the co-founder and CEO of Facebook maintains “The biggest risk is not taking any risk. In a world that’s changing quickly, the only strategy that is guaranteed to fail is not taking risks.”

However, world class companies identify potential risks and challenges in the sales process and develop contingency plans to mitigate risks and overcome obstacles. This proactive risk management helps to ensure a smoother sales process.

Compliance and Ethical Practices:

Making sure that the sales strategy adheres to legal and ethical standards is a discipline expected by the market. Maintaining transparency and integrity in all sales interactions is a core principle for customer success.

Implementing a world class sales strategy is not rocket science! Our new VP of Sales needs to understand that it takes discipline to deliver a comprehensive plan and that it is an iterative process. The first steps include researching client needs, setting clear objectives, and defining the target customer segments. This forms the basis for any sales plan; however the VP needs to recognize and that continuous refinement is a defining factor of an effective strategy.

Best-in-class companies remain agile and open to change, continually adjusting their sales strategies based on market dynamics and emerging opportunities. They also invest in technology, data analysis, and employee development to stay at the forefront of their industries, which allows them to consistently outperform competitors in their respective markets.

Rizolve Partners understands what needs to be done to achieve sustainable, high-quality growth. To learn more, check out our process expertise tips sheets here.

The Four Sales Competencies for Driving Revenue Growth

Posted on September 20, 2023May 8, 2024 by RizAdmin

You are the brand-new Vice President of Sales attending your first executive planning meeting. You swagger into the board room, seat yourself to the right of the CEO at the head of the board table (the position of power), and look around at your colleagues with the confidence that says … I belong here! And you do… you have worked hard, you have excellent credentials, you excelled as a salesperson, and you are ready to take on this new challenge!

The CEO, after welcoming you to the “adult’s” table, then proceeds to lay out the strategic plan that has been underway for 12 months, reviewing the components of the economic engine that are now in place to support a growth strategy that delivers true value to the company. The financial resources have been secured, the operational improvements have been made, the human resource plan is now in place, and the commitment to the shareholders has been made…

The CEO looks your way and announces … “and now our new VP of Sales will outline the elements of the sales strategy to get us there”! And that’s when it hits you … “I need a plan”!

This is the second of a 3-part series examining the key drivers of successful revenue growth that creates real value. In the first part, we looked at the organizational elements required to be in place to ensure that the company can deliver on the promises made by the sales department. We discussed how the resources of the company should be properly organized to deliver on the plan, to maintain balanced momentum as the revenue accelerates.

This time around, we will look at the key sales competencies that our new VP must establish to provide the fuel that will sustain the corporate strategy that represents the number one objective of 66% of all CEOs: Growth!

When it comes to the competencies of a sales team or company, the focus shifts from individual skills to collective abilities and strategies. Here are four key sales competencies that are crucial for a successful sales organization…

Sales Strategy:

A well-defined sales strategy is fundamental to a company’s success in the market. This competency involves setting clear objectives, defining target markets, segmenting customers, and determining the best approaches for reaching and engaging potential buyers. A strong sales strategy also includes pricing strategies, distribution channels, and sales forecasting.

While this sounds like “Sales 101”, it is surprising how many companies identify sales strategy as a major pain point.

89% of small to mid-size companies surveyed** indicated that they struggled to identify how they were positioned within their industry, the strengths and weaknesses of their key competitors, and even their value proposition (more than half of small to mid-size companies reported that they didn’t have a value proposition).

Of course, these are all essential elements of a successful sales strategy.

Sales Process and Methodology:

Establishing a standardized and efficient sales process is essential for consistent results and scalability. This competency includes defining the stages of the sales cycle, creating a structured approach to lead generation and qualification, and implementing sales methodologies that guide salespeople in their interactions with customers.

The sales process is a structured series of steps that a sales team follows to guide a prospect from initial contact through to a closed deal.

Simple right?

Yet only 10% of the companies surveyed stated that they have done an adequate job educating their sales teams on the essential steps.

Sales methodology refers to a systematic approach or framework that guides the sales team in how they interact with prospects and customers throughout the sales process. It provides a set of best practices, strategies, and tactics for selling effectively. Several sales methodologies exist, and organizations may choose or adapt one based on their specific needs, but we will do a deeper dive into these options in part 3 of this series.

At the end of the day, it’s about consistency in the sales process that helps ensure that sales activities are systematic, consistent, and aligned with the company’s sales strategy.

Sales Training and Development:

Investing in the continuous development of sales teams is a critical competency. Providing sales training, coaching, and mentorship helps salespeople acquire the skills they need to excel in their roles. Ongoing development programs also keep sales teams updated on industry trends, product knowledge, and sales techniques.

While this clearly would benefit the salesperson’s ability to close business (also a major bonus to the company), there is the additional benefit of building and retaining a seasoned, experienced sales force. In fact, Forbes magazine recently stated that “skills are becoming the new currency” for hiring and retention.

According to a LinkedIn Learning report, 94% of employees would stay at a company if it invested in their career development.

Data Analytics and Technology:

Michael Dell, the founder of Dell Computers once said “Our business is about technology, yes. But it’s also about operations and customer relationships.”

In today’s data-driven business landscape, companies can and must leverage data analytics and technology to make informed decisions about customers to optimize sales performance. This competency involves using customer relationship management (CRM) systems, sales analytics tools, and data-driven insights to track sales activities, analyze customer behaviour, and make data-backed decisions for improving sales strategies.

Once upon a time, these tools were expensive and limited only to those experts in the IT department with the skills to extract meaningful information from reams of data. Today, advances have made these tools cost-effective and user-friendly to the point that sales teams can effectively track customer interactions through the sales funnel, maximizing the opportunity to close business like never before.

Summary:

Let’s get back to our new VP of Sales and the challenge to develop an effective sales plan to fuel the overall company objective for sustainable and predictable growth! The good news is that sales strategy and technology have advanced to provide the roadmaps and the tools necessary to establish an effective sales strategy for any industry. The key components include:

A documented, well-understood sales strategy
A defined sales Process and methodology
Ongoing sales training and development
The effective use of data analytics and readily available technology

These four competencies work together to create a strong foundation for a successful sales organization. A well-defined sales strategy informs the sales process, and ongoing training and technology enable sales teams to execute that strategy effectively. Additionally, continuous evaluation and adjustment of these competencies are essential to stay competitive in a dynamic marketplace.

Finally, the effective implementation of these strategies is proven to generate positive sales results that meet corporate objectives and allow our VP of Sales to maintain that confident swagger!

** Data compiled from client results from 3,686+ completed SAA 4.0s pre-engagement surveys from 12/1/2018 – 12/31/22. ©Sales Xceleration.

Rizolve Partners understands what needs to be done to achieve sustainable, high-quality growth.
To learn more, check out our process expertise tips sheets here.

Driving Sales Revenue that Delivers Business Value

Posted on August 20, 2023May 8, 2024 by RizAdmin

Two-thirds of CEOs state that their number one corporate objective is to grow the company. For many, growth is defined by increasing Sales Revenue.

But how many times have you witnessed companies on a tear that experience unintended issues which end up being terminal for the same CEO who mandated the growth?

By stepping on the accelerator and increasing sales, the company may have inadvertently created an even bigger problem than anaemic growth.

Some examples of unintended consequences that impact other value drivers in the company and potentially destroy value include:

This is the first of a 3-part series that examines the recipe for success that delivers increased value associated with certain types of Sales Revenue growth – …the golden nugget that you have been looking for – Value acceleration.

In this first part, we’ll examine the essential components of the economic engine necessary for the achievement of a successful revenue growth strategy that delivers value. By successful we mean that the revenue achieved needs to be predictable and sustainable. In the next two parts of the series, we will be discussing the “What” and then the “How” (stay tuned – they are the important bits).

The first question that my Sales Xceleration expert partner always asks when we talk about growing a company is “What is the $ Goal we want to achieve?”. This is the right question. We want to grow – but you need to answer the question: by how much and how quickly? In other words, he is asking the question “What is the Plan?”.

The plan goals should be both Strategic (3-5 years out) and Tactical over the shorter term (typically one year). Strategic goals are necessary because building out a sales team with tools, systems and processes that are scalable are long-term activities that require investment capital. Tactical goals targeting a certain level of sales once the infrastructure is in place with the appropriate skills, require a further level of detail to prove that the revenue levels contemplated provide a satisfactory return on investment.

Importance of a Business Plan

A written business plan is a statement of intent and clarification of purpose for everyone involved. It is a clarification of priorities. At its simplest, it is a communication tool and the golden key to fostering buy-in and alignment. For the team involved in implementing the plan, it is also a motivational tool as they can begin to envisage their role in executing the plan.

A planning process allows for kinks in the thinking to be ironed out minimizing the bumps in the road and therefore allowing for acceleration to occur. It provides a methodology for ideas and assumptions to be proved. It is a GPS that gives you a road map to reduce the odds of getting lost along the way. In other words, it is a risk-reducing exercise.

Fundamentally, it allows targets and goals to be set that can be benchmarked for reasonableness, and ceiling tested against company capacity and achievability. Crucially, it provides analytical support to aid critical decision-making and reduce guesswork.

Put in the context of the question: “What is the sales goal you want me to plan for?” it provides a process to answer the question: “At a particular level of sales and velocity, does the organization’s operations have the capacity, process, and competency to deliver on the promises made by the sales department”.

What Disciplines are a Prerequisite to Reliably Deliver Sales Revenue Growth?

Growth that is valuable needs to be sustainable, predictable, and transferable into the hands of a third party. It also follows that as value increases so does the ability to deliver higher levels of profitability and cashflows. The disciplines that are required as a foundation to deliver such results are:

Senior Management provides leadership and planning to decide on goals; clarify priorities and make decisions on the allocation of resources. Management provides the conditions under which alignment and motivation can be fostered toward the achievement of goals.

Human Resources create and develop the skills and knowledge base needed for the company to execute its goals.

Recurring revenues allow the company to sustain its operations, providing the predictability for the company to pay its bills as they fall due and to invest for future growth. Recurring revenues have a higher value than one-off gains for these reasons.

Margin is the ability of the company to make an economic return on its activities. The higher the margin relative to the industry average the more valuable the company is compared to its competitors.

Financial and operational reports allow the company to monitor its progress and benchmark itself against its competitors. Timely reporting provides the key metrics that can facilitate corrective action and capture opportunities as they arise.

Sales plan and process are critical elements to organizing resources around an action plan, scaling resources around a process that is replicable with the ability to delegate, monitor, incentivize and organize.

Operations is the body of resources, tools and processes that are required to deliver on the promises made by the Sales team in a timely manner.

Customer satisfaction is the mindset of the customer after receipt of the product or service which was promised by the company. A high level of customer satisfaction is correlated with increased company value.

In short, a valuable company creates a plan to capture the economic returns from market participation and delivers returns from its activities that are higher than its competition while providing products or services that are in demand at service levels that deliver above customer expectations.

Sales Revenue Growth

Valuable sales revenue growth therefore has a business underpinning that spans each of the above disciplines. Management is responsible for deciding on the sales targets that they want to be achieved to earn a targeted rate of return, and they are responsible for putting in place the resources that are capable of delivering on each of the above business needs. Specific examples of these are:

Sales plan that has adequate work resources to achieve execution;
Financial Plans that prove the company is properly financed through the growth period;
Human resources that are skilled, trained and in place to execute using the tools at their disposal;
Pricing mechanisms that cover costs with an adequate return to cover the investment and make a reasonable economic return for the investor;
Customer service data that measures the satisfaction of the service levels being provided; and
A sales process that measures sales activity and minimizes lead management timelines.

Earning the Right to Grow

It is important in business to understand that there are various rights of passage. Sustainability and predictability are two of those rights. Sales Revenue growth fuels the prospects of a company to be valuable, but only if the prerequisites detailed above are in place and organized such that predictable profits and cash flows, at levels at least commensurate with the competition, are being earned while satisfying the customer base. In the absence of a balanced economic engine, unintended consequences occur that are costly and time-consuming to resolve.

The right of passage that allows a company to achieve valuable growth can be witnessed most clearly by growth that perpetuates when the value drivers that we have identified are balanced, working in harmony and appropriate for the size of the company in question.

This balance is what makes the difference between a successful entrepreneur and an underperforming or failing one. It is the X-factor… Different stakeholders know it when they see it; they want to be part of it when it is working and stay away from it (or leave) when it is not.

Finally, right of passage requires sustainability and predictability. In its absence, investors turn away from companies that cannot deliver on what they have promised or, at least, charge significantly higher premiums for the uncertainty. “Under promise and over deliver” is a way to successfully manage the “right of passage” that the business community demands.

Summary

In order to deliver valuable growth from Sales Revenue acceleration, it is essential to organize resources in a manner that enables the fulfillment of commitments made by the sales department. Not having the resources properly organized will lead to unintended consequences which will increase the cost of investment and extend the timeline to success, or worse cause the company to stall or fail.

Having your valuable resources in place will give the organization’s economic engine the horsepower to gear up and respond smoothly when the growth accelerator is pressed by the leadership group. We have outlined for you, above, the essential requirements of balanced growth.

In Parts 2 and 3 of this series, we will outline for you the build-out of the 4 key sales competencies that will enable you to accelerate your sales revenue growth, assuming that your economic engine is in place. We will then detail how those competencies operate in practice for “best in class” companies to deliver on your growth imperative and to sustainably achieve your right of passage to the “next level” of business value.

Rizolve Partners understands what needs to be done to achieve sustainable, high-quality growth.
To learn more, check out our process expertise tips sheets here.

Exit Strategy Planning and Legal Due Diligence

Posted on June 19, 2023July 13, 2023 by RizAdmin

By Stephen Cummings and Vanessa Grant

Stephen Cummings is the CEO of Rizolve Partners, a leading Exit Planning firm.

Vanessa Grant is a leading corporate lawyer with Norton Rose Fulbright Canada who is skilled in preparing for and executing business transactions for entrepreneur-led private and public companies.

PLANNING YOUR BUSINESS EXIT

There are many areas in your Business Exit where agreements and representations are made to a third-party buyer that he/she will rely on in agreeing to the transaction. Having legal advice to ensure that reasonable bargains are made such that options for recourse are limited by reasonability is important to mitigate risk.

Seeking early strategic advice, followed up by disciplined pre-due diligence planning is key to negotiating a successful transaction and ensuring that momentum in the deal is preserved.

Finally, having a skilled M&A lawyer to negotiate your side of the bargain who understands the current market for appropriate legal terms, conveys to the bidding team that you are serious about concluding a satisfactory deal.

Legal Advice on Planning Your Business Exit

The legal advisor is one of the key advisors to a business owner in planning for and executing an exit. This advisor should be part of your core transition team. Their role has the key objective of ensuring that all of the existing company legal agreements and corporate governance structures are drafted and allow for a transaction to proceed with minimum friction from any stakeholder, including the buyer.

There are two core roles that the legal advisor fulfills in this regard:

Ensuring that a company is ready from a legal perspective to navigate the transaction process. This includes ensuring that the existing (and subsequent) legal agreements and corporate governance structures (controls, policies, and guidelines) are drafted in contemplation of a future purchase and sale agreement such that documented acceptance of a transition into third party ownership has been reached, so far as possible, well in advance of a transaction; and
The legal advisor has well developed experience in drafting and negotiating a purchase and sale agreements at current market terms. Not all advisors have equal experience and a legal representative who is active in the M&A market is important.

STRATEGICALLY PLANNING A TRANSACTION

In strategically planning a transaction, a legal advisor should be included to offer advice in the review in such matters as:

Tax efficiency of the ownership or corporate structure;
Capital structure and the approval process for a transaction;
The nature and extent of the liabilities contained in the financial instruments held;
The corporate governance in any shareholder agreements, the articles and the laws of the company that will impact the ability of the entrepreneur to affect a transaction;
Understanding the nature of the outcomes of different exit options.

After making a decision to transition the ownership of the company into different hands, the legal advisor should then be engaged to review, from a tactical perspective, all of the elements of the corporate group structure, agreements governing the rights of shareholders, equity compensation plans and other financial instruments, the articles of the company, the laws and existing legal agreements to ensure that there are no blockers or issues of significance that would cause a problem for the transaction. Examples of the legal counsel review would include the following:

Buy-Sell Agreements

Are there any?
If so, do these agreements contain documented purchase options?
If so, are there any provisions related to the departure of the entrepreneur?

Participation Agreements

Are there bonuses or distributions on exit?
Are there allocation of profits, distributions or carried interest that activate on sale?

Intellectual Property

Does the company have an inventory of its registered and unregistered intellectual property? For example:
- Patents
- Trademarks
- Trade secrets
- Copyrights
- Domain names
- Data
If the company develops or has developed its own software, is the software subject to an open-source license?
Is it clear who owns the intellectual property?
- Distinguish between employer, employee, contractor or prior employer
Are protections in place to further guard the intellectual property such as:
- Assignment of intellectual property agreements
- Confidentiality agreements
- Prior restrictions
- Internal policies and procedures
- Licenses

Financial Agreements

What are the financial covenants?
Are there personal guarantees that will need to be released on closing?
What are the change of control provisions?

Contracts

For all agreements:
- Is there a change of control provision that requires the consent of the counterparty on a change of control (sale) of the company?
- Are there limitations of liability or unlimited liability?
- Are there indemnification clauses?
- Do you have insurance to cover the indemnification provisions in the agreement?
Customer and vendor agreements
- Is it clear which form of agreement takes precedence (look for terms and conditions that are incorporated by reference into purchase orders – do they conflict with the master agreement)?
- Are the performance terms of the contract clear?
- What are the termination provisions? Is the contract a long-term contract, or a short-term contract? Is the duration of the contract consistent with industry norms?
Leases
- Leases almost always have a change of control provision – consider the relationship with the landlord and whether there will be any issues obtaining consent for a change of control.
Licenses
- Review intellectual property clauses: who owns any intellectual property?

Human Resources

If there are any written employment agreements or offers of employment, do they reflect the current state of employment law?
What are the liabilities for vacation pay, potential severance pay, and benefits? Are these clearly documented?
Non-compete, non-solicit, confidentiality, and assignment of intellectual property provisions – what are they and what do they affect?
Retention – do you intend to provide retention incentives for any employees – all or key only?

Business Litigation and Risk Management

Litigation
- Is there any litigation?
- If so, is it likely to settle or be resolved prior to any sale of the company?
- If it is not likely to be resolved prior to a sale, discuss with your legal advisor how best to manage it with a prospective buyer.
Reducing likelihood of litigation
- Do you regularly perform credit and background checks?
- Are there onerous contract terms that should be flagged for prospective buyers?
Insurance
- What insurance policies are in place?
- What is the scope of the insurance? Does it cover the operations of the business?
- Do you need directors’ and officers’ insurance?
- Does the company have CGL and named insureds?
- Are professional liabilities covered such as errors and omissions?
- Is workers’ compensation and employer liability covered, either statutorily or with policies?
- Do you have cyber security insurance?
- Do you have employee dishonesty coverage?

Corporate and Regulatory Filings

Have all the annual returns been made and are they in good standing?
Have all extra-provincial registrations been made?
Are all required regulatory and tax filings up to date in each jurisdiction in which the company does business?
Does the company have all permits in all jurisdictions to carry on its business?

Minute Books

Do you have them completed?
Are they up to date?
Is the list of shareholders up to date and accurate?

DRAFTING THE TRANSACTION AGREEMENTS

The second major area where you will need skilled legal expertise to help you mitigate transaction risk is in drafting the transaction agreements. Key documents and components of the agreement of transaction terms are:

Letter of intent (“LOI”).
An LOI is a non-binding letter of intent usually drafted by a prospective buyer as an indication in writing of a buyer’s willingness to purchase the company. While the document is of a legal nature, however, it is not intended to be fully binding. The only binding obligations tend to be with respect to confidentiality and exclusivity. The LOI sets out the terms of the acquisition process and provides insight into what the final offer and its terms might look like.
Purchase and sale agreement.
A buyer may elect to purchase the shares of a company or all or some of the assets of a company. The form of transaction (share or asset sale) depends on a number of factors, including tax and business risk. Regardless of the form of acquisition, a business purchase and sale agreement is a legally binding contract that outlines the terms and conditions of buying or selling the business. It specifies the purchase price, assets, liabilities, warranties, any purchase price adjustments, and other important details to protect the interests of both the buyer and the seller. Much of the negotiation of a purchase and sale agreement is around what is the limit to how much a seller has to pay where there is a breach of the representations, warranties, and covenants made. The limit might be an amount equal to the purchase price (not as common as it once was) or a percentage of the purchase price and any holdback or escrows of the purchase price.
Documenting and negotiating representations and warranties.
Representations and warranties in a business purchase and sale agreement are statements made by the seller about the condition and status of the business being sold. These statements cover various aspects such as financial information, legal compliance, contracts, intellectual property, and other relevant details. If any representation or warranty is found to be untrue, the buyer may have legal remedies or options for recourse.

FINAL TAKEAWAYS

In summary, having a legal advisor with the appropriate M&A skills involved in the early consideration of the transaction strategy can save a lot of time and money. As part of the aligned core transition team, this advisor creates the potential for the transaction to proceed with minimum friction from any stakeholder, including the buyer. You can see from the above analysis that there are many areas to consider and having a trusted, knowledgeable legal advisor who knows you and your goals is critical to achieving a satisfactory outcome.

For more information about Exit Planning, check out our process expertise tips sheets here.

The Smartest Business Owners Never Leave Money on the Table

Posted on October 16, 2022November 16, 2022 by RizAdmin

Have you heard about the “age wave” that could affect the value you realize for your business when you decide to monetize the wealth you’ve created? Two thirds of private business owners are baby boomers, and their average age is 65, representing over 700,000 Canadian businesses. According to BDC, 49% expect to exit their business within 5 years. That could be good news if you’re looking to buy a business, but the market is about to get much more challenging for owners looking to exit.

Unlocking the wealth in a business is no trivial affair given that 80%-90% of most owners’ financial assets are tied up in their business. Owners are banking on their ability to monetize this wealth to ensure their financial security and lifestyle once they exit.

However, historical transition rates suggest looming issues for the unprepared: statistics show that only 20%-30% of private business transitions are successful. Poor transaction success, high levels of owner dissatisfaction, and low levels of survival for family-owned transfers all threaten retirement plans.

Despite that backdrop, nearly 80% of owners have no written transition plan, and nearly half have done no planning at all. Not having a considered exit plan will close doors to value maximizing opportunities and available tax saving strategies.

Here are five thoughts business owners should keep in mind when trying to optimize value on what they have created.

Know your exit strategy

A successful exit strategy ensures a business owner is financially prepared, maximizes transferable business value and provides a plan to answer the question, “What next?”

There are several factors that come into play.

First, an owner must understand their business and their personal objectives.

Your personal objectives and needs are key inputs to correctly setting your personal expectations and financial plans. Understanding your wealth plan and what must be achieved out of the business sale to enjoy it, represents your bottom line for negotiations.

Understanding that there are different phases in the getting-to-cash process is important, too. The planning phase to maximize value can take up to three years, while preparing and executing the final transaction can take up to a further year. Even after the transaction is completed there may be contract terms that need to be fulfilled.

Having a written plan covering these stages, as well as identifying goals for pre-sale value acceleration, will help chart a course for the owner and give other stakeholders something they can buy-in to.

Focus on value

To optimize value in the sale of a business, an owner needs to look at his or her company through a value lens. This is likely to involve “reframing” their approach from a perspective of purely maximizing profit to one of maximizing value.

To do this an owner needs to understand the value of the business today and what drives that value. The quicker one gets comfortable with the fact that this is not just about sales and growth in profit, the greater the likelihood of having a successful sale.

The more time one allows for “value acceleration” work to be executed, the better the prospect for maximization and creating a return on investment.

What gets measured, gets done

It is important to understand that more than 80 percent of the value of a company lies in intangible assets and goodwill (often off-balance sheet). An advisor team can help an owner identify and measure the components of such assets.

In order to track progress in accelerating value pre-sale, it is important to institute a measurement framework where the unit of measure is enterprise value. Having the value scores for the components of these assets allows an owner to create a targeted plan of improvement around the key drivers of value.

There are various measurement tools, ranging in sophistication, that enable owners to identify winning strategies and transform them into genuine results (e.g. Value Builder and Value Opportunity Profile). Measuring the positive results from improvement actions will help deliver desired outcomes.

Remember the maxim: “What gets measured, gets done!”

Know the end game

There is a defined sales process that occurs when selling a business.

The sales agent (broker or investment banker) invites a group of prospective buyers from a wide variety of sources to engage in the sales process. The agent stages the interaction to funnel down to the buyers who have demonstrable interest and qualifies their ability to execute the transaction. The goal is to orchestrate competition and create “deal tension” to optimize bids with attractive terms.

Some key sales documents, which the market expects to be available when engaging, will be employed in the process. An owner will need to have significant input in their preparation and justification. Having these documents available, with supporting information, is critical for deal momentum and navigating due diligence.

A lawyer skilled in M&A will also draft and provide negotiation support for various legal documents critical in arriving at negotiated price and terms.

Appoint an aligned advisor team

There are a number of key roles that form the backbone of an aligned exit-planning team.

First, there’s a quarterback (the “Exit Planner”) who can help an owner build, orchestrate and implement a plan. Critically, this position will take the business through a process of value acceleration and ensure that the business is transferable and ready for sale.

A personal financial advisor helps compute the minimum number that an owner needs to achieve from the sale of a business in order to fulfill his or her lifestyle wants. This provides a bottom line.

A business tax and legal advisor helps structure business assets so that what is sold is separated from assets not being sold and will organize to minimize tax on net proceeds.

Finally, a transaction advisor will help the owner organize and orchestrate the sale process, which requires independence and skill.

For a business owner, early planning, informed navigation, and careful execution of the exit process can mean the difference between maximizing the value of the business or settling for something less than they have dreamed about for their retirement.