PREPARE YOUR BUSINESS FOR SALE - MARK CORKE & FRIENDS

Good morning bloggers - this was Thursday's post. Mark's seminar is run from time and I strongly urge everyone who can to book a seat at the next one. Mark can be contacted on www.suitegum.co.za.

Don't delay, book as soon as you can!

PREPARE YOUR BUSINESS FOR SALE
Mark Corke & Old Friends
12 November 2007

Today has been an exceptionally busy day for the airline industry in South Africa, managing the fall out (pun intended) of a motor falling off a 737-200 on takeoff. Planes have been grounded, and there is confusion and uncertainty all round.

Much like many of the businesses I have the privilege of dealing with while helping SME owners prepare their businesses for sale. Further fall out from the (almost) disaster is that I was grounded, uncertain and confused with respect to how I was going to get to my seminar tonight in Johannesburg. Radio stations reported that all flights were cancelled, then that only 737s would be affected, and finally that some airlines would be permitted to take off, but that there was uncertainty as to which ones.

We thought it would be prudent to postpone the seminar tonight. And so the telephone calls began....If we haven't got to you yet, and you were attending tonight, please accept our apologies. I am told though that almost everyone has been contacted personally, and for the most part are happy to attend the next Sandton seminar on 4 December.

Snatching Victory from the Jaws of Defeat
The Boeing 737-200 incident last week might have caused 100 odd business people on board to give some thought to where their businesses might have been, had the incident had a less happy ending, while a current client of ours is currently reaping the somewhat disappointing fruits of not preparing for disaster:

Ten years back, two friends developed a new product for an enormous industry in South Africa. The idea was that of the salesman, who I will call Sam. He passed the idea on to his technical friend (Tom). Together they worked to perfect the product which, while it would reduce the need for several of their existing products, would also create such a demand for other products of theirs, and would take business away from their competitors. Once the product was working perfectly, they sought to patent it, which they did, jointly.

As these things very often pan out with time, the two friends started seeing different paths in their business. And so they agreed that they would split the business into a manufacturing concern and a separate sales business. The patent would be shared and controlled jointly. Because their friendship went back to the "old Rhodesia days", trust was high in their relationship. Then Sam contracted cancer, and died within months. He had just enough time to adjust his finances and fix his will. Everything was left to his wife, including his business which she was involved in, as the accountant.

Well, here we sit, a year later, with Sam's wife wanting to sell a business which she is battling to run. Customers are falling off, and some are now buying directly from Tom. Although the patent was "shared", it now transpires that in fact it is registered in Tom's name!

What are the implications from a prospective purchaser's perspective? [This, incidentally, is a question you should ask yourself almost daily, in all aspects of your business.] In this case a buyer will almost certainly bring a lot of pressure to bear to lower the price of the business for a number of reasons:

Turnover is falling off, a year after Sam's death.
There is no continuity of expertise
There is no supplier redundency...
...a whole lot of other rather worrying situations, but most importantly to this illustration:

The major product is at risk, and it accounts for the major portion of the business.

Our job now, in the interest of the client, is to persuade Tom somehow, to do the right thing and agree to provide any prospective purchaser with a shared right to the product. We will sit down across the table from him, together with Sam's widow, and hope that he honors the memory of his late friend. Will he? She thinks he might.

In reality, legally and economically; why should he? These are the realities for the living, while the dead rest in peace. Think of it now, and ask yourself: "Is my business prepared for sale?" What are the implications for Sam's widow?

The business would, (but for the lack of redundancy, forward planning, security, and some other key issues) have been worth about R3,5M, at the profits reported for the last financial year.
As it sits, she will be lucky to get R1M!

There is some unpleasant negotiating to be done prior to the business even getting to the market, making this a doubly difficult business to dispose of.

Had some really key issues, not all addressed in this newsletter, been put in place, Sam's legacy would have been a much more impressive one!

Boyzangirls, do not make the same mistakes with your business. There are key elements, which are really simple to deal with, to be sorted out in almost all businesses. Look to them now, for tomorrow may be too late - not for you, perhaps, but for your heirs.
Cheers

Mark Corke