How to Whitewash Your BIMBO, A Business Sale Phrase Book – 2 – Grooming to Yield

As with any type of work, how to value a business and how to manage a business sale have their own professional jargon. This pair of articles are designed to give brief plain English and practical explanations for some of the common terms used, from Grooming to Yield.

Grooming – the process of preparing a business for sale to make it attractive to a purchaser. Can take up to two years.

Heads of Agreement – the document that sets out the price that has been agreed for the sale and the key terms, subject to due diligence and contract.

Heads of Terms – see heads of agreement.

Information Memorandum – see sales pack.

Insolvency – being unable to pay debts as they fall due or liabilities exceeding assets. The Insolvency Act sets out a number of tests including failure to deal with a statutory demand or to pay a judgement debt which will be taken by a court as proof of insolvency.

IPR Intellectual Property Rights – includes everything from patents and proprietary information to brands and trademarks.

IRR Internal Rate of Return – the discount rate at which a net present value calculation gives a zero result, which in turn means that the discount rate equates to the return generated by the project or investment.

IPO Initial Public Offering – the American terms for a flotation; taking and listing a company for the first time on a stock exchange.

Letter of Intent – see heads of agreement.

Listing – floating a company on a public stock exchange.

NPV Net Present Value – the value of a discounted cash flow, less the amount of money you have to pay to acquire it.

Non-embarrassment Clause – the right to share in any increased sales proceeds if your buyer sells your business on again within a specified time.

OFEX – the ‘over the counter market’ which is a privately traded listing where shares are dealt in on the basis of individual trades. Often used by small companies to obtain speculative money as an alternative to venture capital, but is significantly less liquid than other stock market listing as there are no active market makers trading the shares.

Open Market Value – also known as fair market value, how much an asset will fetch if sold in the open market. See also ERP.

PBIT – see EBIT.

P/E Ratio Price/Earnings Ratio – a measure of how many times the current level of earnings someone is prepared to pay to acquire an interest in a company. A high P/E multiple usually indicates an expectation of high growth (as then E is expected to grow significantly reducing the P/E ratio down to a more normal level). The inverse of the business’s yield.

Payback Period – how long it will take to recover an investment at current level of earnings.

Phoenix – a buy-out of a business from insolvency by the existing management.

Post Acquisition Integration – the process of change planned by a buyer in order to absorb the purchased business into their existing organisation.

Preference – putting one creditor in a better position than others. In the event of insolvency a liquidator will review transactions leading up to the liquidation and if certain conditions are met will seek to set aside any preferential transactions.

Prospectus – a package of information prepared for provision to potentially interested investors in a flotation.

Sales Pack – a package of information prepared for provision to potentially interested parties.

Sales Mandate – an instruction to a corporate finance advisor to act to sell your business.

SAV Stock At Value – stock to be purchased at the value on the day of sale. Valuation will normally be determined by GAAP.

Secondary Buy-out – the sale of an interest in a company by one VC to another. Generally unpopular with VCs as it is sometimes seen as a sign of ‘failure’ by the first investing VC.

Section 320 – provision in the Companies Act that prevents a director purchasing substantial assets (broadly anything worth more than £100,000 or 10% of the net assets of the company) without first obtaining the consent of the shareholders.

Stock – 1 a company’s equity or share capital, colloquially: shares. 2 A company’s trading stock comprising raw materials, work in progress, and finished goods stock.

Target – a company to be acquired.

Trade Purchaser – an industrial buyer of companies (as opposed to a financial purchaser such as a VC).

Transaction at Undervalue – selling an asset at less than its fair value. In the event of an insolvency, a liquidator will review significant transactions preceding the insolvency and can act to set aside transactions at undervalue.

TUPE Transfer of Undertakings Protection of Employment Regulations – the rules which govern the treatment of employees on the sale of a business and which will broadly make a purchaser responsible for taking on all the employees of the business being acquired (whether by sale of shares or business and assets) on the existing terms and conditions of service. Also provides that if employees have been made redundant in anticipation of, or in an attempt to avoid the purchaser having to take this responsibility, the purchaser will in any event be liable. There is a limited exemption to this rule in buying businesses from some forms of insolvency proceedings.

VC – Venture Capital or Venture Capitalist.

Venture Capitalists – a firm set up to hold investors money and to invest it in high growth opportunities. Generally look to achieve a return of 30% per annum and hold investments for three to five years before selling. Generally tend not to be interested in deals below say, £1.0million investment. (See equity gap; business angel)

Whitewash Agreement – Section 161 of the Companies Act is designed to prevent asset stripping, by prohibiting the pledging or use of the company’s own assets for the purchase of the company’s shares (so the purchaser cannot promise to pay the seller out of the proceeds of selling the company’s assets once he has control of it, or borrow the money for the purchase by offering the company’s assets as security). In many private company sales however, the only way that purchasers are able to raise funds to buy the company is by borrowing against the assets to be bought. An exception is therefore allowed to the 161 rule involving the preparation of a report by the company’s auditors, known as a whitewash agreement.

Yield – the amount of return received (E for earnings) for the price (P) paid. Us

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Towards More Reliable B2B Sales Forecasting And A Better Business to Business Sales Strategy

Why do so many B2B sales forecasts bear a closer resemblance to great works of fiction than to reality? Why do “top opportunities” regularly slip and slide from month to month and then often disappear altogether? Erratic sales forecasting is a joint symptom of superficial qualification and an inadequate business to business sales strategy resulting in a failure to get close enough to the key influencers or decision makers that can actually make things happen.

The more business critical the solution or service being offered, the more complex the sales forecasting challenge as people making or influencing the choice of supplier will have more to lose if a bad decision is made. There are however proven ways to progress towards more reliable sales forecasts and the good news is that in doing so you will develop a stronger sales strategy that will serve to improve sales performance over time.

Eliminate Superficial Sales Qualification to Improve Sales Performance

What many salespeople refer to as qualification is nothing more than a superficial attempt to garner some information which is perhaps more self-serving than it is customer focussed. Is it any wonder that senior influencers and decision makers might see little value in engaging with them? What value do such salespeople really add for the busy executive with a significant business challenge to overcome and perhaps a business case to build in support of addressing it?

Too many salespeople assail prospects and customers with their own objectives (targets, pressure from boss, commission payments, etc.) foremost in their minds and then talk too much! The need to qualify an opportunity fully is often over-ridden by a salesperson’s strong desire to “lay out their stall”. Presenting, proposing and demonstrating often come more easily to them than intelligent questioning and listening. Carefully selected sales coaching can help salespeople engage in an intelligent “probe and listen” mode that builds bridges rather than barriers.

Multi-layer sales qualification is key to winning strategic clients, getting inside their heads to understand their thinking and gaining mind-share in an often politically complex environment. Superficial qualification is a sign of a weak business to business sales strategy and approach and is at the root of the issues that plague sales forecasting reliability whilst defying attempts to improve sales performance. All is not lost however as many salespeople can up their game provided they have the right coaching and guidance on effective strategies for complex sales scenarios.

Getting close to the “powerbase” (key influencers and decision makers) is crucial for business to business sales of a value-add or business critical nature. These people are making vendor selection decisions on which their careers may depend. They look for potential suppliers that support and contribute to their business case rather than those that seek to pitch and shoehorn the prospects problem into whatever solution they may have to sell. Professional salespeople tend to engage “top-down” and qualify deeply to simultaneously build their knowledge and credibility at senior level. These behaviours support more reliable sales forecasting and perhaps more importantly their consistent application can significantly help to improve sales performance over time.

The Foundations for An Effective Sales Forecast Dashboard

Trying to drive sales opportunities from the top-level forecast down is a common and seriously flawed approach. Sales forecasts should be a dashboard, but they will never be effective in isolation. The foundations for reliable sales forecasting are good account planning combined with deep qualification, ability to engage and converse at senior level and adept negotiation skills. Sales opportunities should be driven from these solid foundations upwards. Effective sales coaching can help salespeople win client mind-share to drive more consistent sales performance and thus more reliable forecasting.

The account planning required to underpin more reliable sales forecasting needs to take a realistic up to date read on each major sales opportunity, highlighting vulnerabilities and exposures to be addressed to secure your company’s position. Any account plan is only as good as the level of intelligence and credibility gained through qualification and senior engagement. It’s important that salespeople are constructively challenged on a regular basis to ensure that they consistently work to develop quality “trusted advisor” business relationships that put them more in control of the sale. There are significant benefits to using an external facilitator for these account reviews.

Salespeople tend to be naturally optimistic and this often works against them when it comes to pragmatically determining where they are with any given sales opportunity. Too often they may hope for the best, failing to qualify deeply enough. It’s important that they learn to ask the hard questions early on as genuine prospects are likely to respect them for it, whilst those with a hidden agenda may well get irritated (often a good acid test). The true value of multi-layered sales qualification lies in its ability to establish early on whether an opportunity is real or not and what is needed to move towards deal closure. Approached with the right mind-set, multi-level sales qualification is an effective tool to establish senior level credibility and build trusted advisor relationships.

A Note on CRM:

Beware the flawed belief that CRM is the answer. Whilst it may provide easier data retrieval, filtering, management reporting, etc., a CRM system is only ever as good as the data it contains. If the sales qualification and business to business sales strategy are lacking then so will the CRM system be. For sales forecasting software or CRM to be effective, they must sit on the foundations of good account planning and effective sales strategy and approach and this is where the primary focus should be.

And the Bottom Line on Reliable B2B Sales Forecasting Methods….

Too often what prospects get is an eager salesperson pushing their wares rather than taking time to fully understand their needs. Fix this and more reliable forecasting becomes possible (along with increased actual sales). Fail to address it and even the best sales forecasting methods won’t help you. The business reality is that intelligent prospects and customers do not want to be sold to; they want “contributor providers” or trusted advisors that will bring them solutions to the business pain they are suffering (“the pain behind the project spend”).

Of course sales forecasting accuracy can never be 100% as there will always be factors beyond a salesperson’s control – spending freeze due to merger or acquisition, abrupt disappearance of a key player, etc. However it can be greatly improved across the sales team with the aid of consistent and pragmatic sales coaching from someone with the relevant actual experience.

My views may sound slightly harsh at times, especially to some hardworking salespeople. However this is the reality as I see it after ten years as a successful sales individual followed by another ten years leading B2B sales teams selling business critical solutions and services at CXO level across Europe. The good news is that significant improvement is possible in many cases, the bad news is that not all salespeople have the calibre to make the grade. Effective sales coaching can identify those worth investment and those whose development is unlikely to yield sufficient return on that investment.

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