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Step 17 – Documentation

Succession Planning

Step 17 – Documentation

By , October 20, 2023

When it comes to selling your small to medium-sized enterprise (SME) business, the journey involves meticulous planning and careful execution. One crucial aspect often overlooked or underestimated is thorough documentation. In this article, we’ll discuss the importance of comprehensive documentation during the selling process and how it can make or break a deal.

The Power of a Well-Crafted Information Memorandum (IM)

An Information Memorandum (IM) is essentially a sales brochure for your business. It provides a comprehensive overview, showcasing your business’s history, products, services, market, clientele, and financial performance. A well-structured IM helps potential buyers understand the potential of the business they’re considering. Conversely, a poorly written IM can deter potential buyers. Creating an effective IM is vital in presenting your business in the best possible light.

What Should Your IM Include?

A well-rounded IM comprises key information about your business. Start with a historical narrative, detailing the journey of your business, its mission, vision, and core values. Present an in-depth analysis of your product or service, your target market, and your competitive edge.

Financial performance is a crucial section, showcasing your profitability and demonstrating the soundness of your business. It should include revenue, expenses, profits, and any other relevant financial metrics. Include details of any existing contracts or agreements with clients, employment agreements, property leases, and more.

Due Diligence: The Make or Break Moment

The due diligence process is where the deal gets truly serious. Buyers will scrutinize every aspect of your business, making sure the claims made in the IM are accurate and align with reality. It’s a comprehensive audit of your business that covers everything from financial records to historical website data and social media engagement.

This process can be extensive and intricate, often spanning 12 to 15 pages of essential items that the buyer needs to review. It’s a thorough examination, including everything from the financial statements and tax returns to customer data and website analytics.

Early preparation for due diligence can be a game-changer. Create a repository of all essential documents, contracts, financial records, and other necessary data. This not only streamlines the due diligence process but also presents your business in a favorable light to potential buyers.

Pre-due diligence is a proactive step. Work with professionals to identify gaps or inconsistencies that could be red flags during the due diligence process. By addressing these issues early, you’re more likely to instill confidence in potential buyers and ensure a smoother transaction.

Collaborate with Experts

Engage professionals experienced in business transactions, such as CPAs, lawyers, and industry experts, to guide you through the process. Their expertise can be invaluable in helping you compile accurate and comprehensive documentation and ensuring you navigate the sale of your business successfully.

In conclusion, meticulous documentation is not just about presenting your business in the best light; it’s about building trust and confidence in potential buyers. It’s about ensuring a smooth transaction that is advantageous for both parties involved. Don’t underestimate the power of well-crafted documents in securing a successful sale.

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Craig West

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.

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