Strategic Business Planning
Preparing to Sell Your Business, Exit Planning and Strategic Business Planning is Key
Currently, 80% of business owners of small and middle market companies who put their businesses up for sale never close the transaction. The reasons: (1) poor preparation and, (2) over valuation.
With the impending Baby Boomer tsunami, more businesses will be for sale than at any other point in history creating a buyer’s market. This buyers’ market will cause significant downward pressures. Business owners who do not prepare well or over value their companies will be left out in the cold.
Many strategic and financial buyers with significant funds to invest are more cautious and reluctant to pay premiums for companies than a few years ago. Owners should take these three steps to significantly increase their chances of selling their businesses on favorable terms.
1. Think like a “buyer.” Most buyers want to purchase a company with the following characteristics:
• A proven entrepreneurial management team in place that can continue rapid growth and expansion after the transaction closes. Most buyers do not want to replace the current management of the company they buy.
• A strong, realistic strategic business plan to continue value creation through market penetration and expansion.
• Ability to produce significant returns on invested capital coupled with strong positive cash flows.
• A sustainable competitive advantage.
2. Prepare before you go after a buyer. Attracting a buyer is like preparing for a beauty contest. Companies that “show best” win “first.” It takes 6 to 18 months to prepare your company for the market place. Strong preparation could mean a much higher selling price. Strong preparation steps include:
• Quantify the business value through a third party valuation firm.
• Shed obsolete inventory. If your financial records show a higher value than market value, take the write-off now so that it doesn’t become an issue for the buyer.
• Have an independent audit firm audit your financial records.
• Strengthen legal and contractual affairs.
• Install and improve operating systems and processes.
• Tell your management team (confidentially) that you plan to sell the company. Be truthful. Include them in the preparation process.
• Create management and key employee long term retention incentive plans.
• Prepare for buyer due diligence. If you were buying your company, what would you drill down on first, second, and so on? Conduct your due diligence. It allows you to correct potential concerns or to put the best possible explanation forward to the potential buyer.
3. Select the right deal team to help prepare you to go to the market and complete the transaction. Obtaining professional advice, on alternative exit strategies, tax issues, alternative deal structures and negotiations is critical. A strong deal team will more than pay for itself and includes:
• A management consulting firm with strong business strategy and transaction experience to lead the sell-side transaction process and prepare you for the buyer’s due diligence process.
• A law firm with significant transaction experience.
• An investment banking firm with deep transaction experience in your industry.
• A corporate accounting firm to guide you through the corporate tax issues.
• An accounting firm to counsel you on personal tax issues.
• A wealth management firm to help you plan wealth preservation and analyze both estate and income tax saving strategies.
Prepare a Solid Strategic Business Plan for a Successful M&A Transaction
Profitable growth is a fundamental driver of shareholder value. Developing effective business strategies that reliably meet or exceed the market's expectations for growth is the key to delivering superior long-term shareholder returns. We believe that there are four phases to the successful strategic planning process:
• Building the foundation for value creation strategies;
• Implementing strategic planning processes;
• Developing strategy support systems; and
• Aligning the organization via strategic programming.
Building The Strategic Business Planning Foundation
Senior management commitment and adequate planning resources are hallmarks of all the top organizations. We cannot emphasize enough that these are essential pre-requisites for an effective strategic planning process. Top-performing companies have introduced the following initiatives to build the kind of foundation that drives a successful, high-performance culture toward its strategic goals:
• They establish explicit shareholder value goals to create appropriate strategic tension.
• To monitor performance against these goals, they define key performance indicators across the business, so that shareholder value concepts become meaningful at the operating level.
• They reward only superior performance at all levels.
• They generate internal demand for market intelligence as a way to test long-held beliefs or close gaps in management's understanding of the business.
• They invest in management's capabilities to help the broadest group of managers think like strategists
• They make management's efforts very visible.
Implementing Strategic Planning Processes
The best strategists have more than one model in their arsenal and reach for the best one to suit the occasion. The outcome of a strategic performance review (evaluating if a business unit is "on strategy") and an environmental scan (evaluating if major threats or unanticipated opportunities exist) would determine whether an intensive, comprehensive strategy workup is immediately required or whether a less comprehensive approach that mainly addresses specific issues is applied in a particular planning cycle. If a business is "off strategy" and major unanticipated threats or opportunities exist, the former is completed. Otherwise, a less comprehensive issue driven strategic planning workup is used to resolve issues and achieve organizational alignment. Here is a closer view of two planning models we found to include the best elements of external intelligence, well-designed options, and risk management.
Developing Strategy Support Systems
Corporate planning is one of the areas where senior executives can make the most impact, by providing resources and setting direction in addition to helping create a strong planning culture. At its best, corporate planning is used to conduct corporate-level planning, facilitate SBU level planning, and aligns business function plans. Corporate planning is in a unique position to increase the value of cross-business synergies and align SBU planning efforts and business function plans with corporate objectives. It can also enhance the business skills and tools of all levels of planners to improve operational planning.
• Coordinate the Data Collection Efforts to Support the Corporate Level Environmental Assessment
• Ensure the Consistency of Inputs from Business Functions and Units, including Consistent Context and Assumptions
• Conduct or Contract for External Research and Interviews
• Synthesize Internal and External Inputs into Business Assessments
• Manage Corporate Level Planning of Strategic Issues and Options with Cross-Business Synergies That May Be over Looked by Managers Focused on the Performance of Their Business Unit
• Facilitate SBU Level Planning Activities, including Scenario Planning at the Business Unit Level, and Integrate Business Functions through Meetings and Consultative Support
Corporate planning is most effective when it is seen as an SBU advocate. For instance, pressure testing SBU plans should be seen as a benefit to the SBU head, not part of corporate-level validation.
GEM Strategy Management, Inc. uses some tools and frameworks throughout the strategic planning process to achieve optimal results. Tools used to identify key strategic issues include external customer research, competitive benchmarking, technology evolution mapping, market segmentation, and scenario analysis.
To help shorten planning cycles, GEM Strategy Management, Inc. uses the latest analytic tools and technology to speed up and support the planning process. We use sophisticated analytic techniques including structural equation modeling and build predictive modeling simulators, use artificial intelligence and neural networks to validate which among several strategies will be the most effective in the market place – shortening the planning process considerably. Simulators can be built for individual managers so they can measure their individual or business unit performance instantly and continuously.
Aligning The Organization Via Strategic Programming
Organizational alignment can be a powerful tool for changing behavior and achieving sought after the performance. While most would agree that managers want to "do the right thing," misalignment prevents optimal performance by diffusing focus and undermining process credibility.
Assuming an effective communication plan is in place, strategic programming should include three elements:
• Approving a strategic initiative should be viewed as the management team agreeing to a two-way performance contract. That is, resource commitments will be met by the company as long as results are on track. The execution of the business strategy should be generously rewarded, while the failure to deliver contracted results should have real consequences to the responsible group.
• Performance and resource contracts should identify key action steps, milestones, accountabilities and multi-year performance goals. Be specific.
• Making a direct link between strategic initiative milestones and incentives ensures realistic performance targets and spurs successful execution. Programs for organizational alignment are too often seen as an afterthought, or as being outside the scope of strategy work. For the top performing organizations we studied, this programming was an essential phase of the strategic planning process.
GEM Strategy Management, Inc. is prepared to help you create a robust, dynamic and successful strategic planning process that can provide for sustainable competitive advantage; more rapid growth and improvement in shareholder value and provide increased leverage with a potential buyer. Call us so that we can listen and better understand your goals and help you design a process that works for you.
Strategic Planning Skill Sets
• Implementation of Strategic Planning Process and Training
• Macro Trends Analysis
• Strategic Market Opportunity Growth Analysis
• Competitive Analysis and Market Planning
• SWOTs Analysis
• Market Segmentation
• Market Research (Qualitative/Quantitative)
• Customer Experience and Loyalty Measurement and Modeling
• Key Resource Evaluation and Analysis
• Infrastructure Growth Planning
• Planning Major Programs and Initiatives Supporting Strategic Goals
• Development of Support Systems for Strategic Plan
• Operational Effectiveness & Process Improvement Planning
• Financial/Budget Modeling to Support Strategic Plan
• Strategic Alignment Reviews
• Cultural assessment & Change Management Planning
• Adaptive Change Management Processes