COVID-19 BUSINESS ACTION FRAMEWORK
The Covid-19 virus is bringing all of us into a time of unprecedented challenge. The protection of life is paramount, and every effort should continue to be made to curtail and eventually eliminate this virus.
The impact of Covid-19 on businesses in Ireland and worldwide is unprecedented and the speed of its impact is alarming. Business owners are dealing with a volatile and evolving situation daily and understandably most are not prepared. However, as the seriousness of the situation becomes a stark reality, Business owners and managers now need to quickly stabilise cashflow, assess the key risks, evaluate the potential impact of this crisis on their business and prepare an action plan to address the immediate impact and develop a roadmap for the ensuing recovery.
The difficulty with this is that it is unknown how long the crisis will last and how deep the economic impact will be. This uncertainty should not deter Business owners and managers from financial planning. The business should put together a framework or tool kit that it can:
– As revenue is impacted businesses’ cash flows are already being strained. Businesses should perform a detailed review of cash flows, covering the next 3-month period at a minimum, and identify any and all mitigating steps that can be implemented to minimise cash flow impacts and maintain cash in the short and medium term;
– this relates to a deep dive into the business and accessing the risks Covid-19 has on all aspects of the business, for example:
– once you have assessed the risks and gathered the various elements where Covid-19 can impact your business, you then need to evaluate the potential impact. This is made difficult due to the uncertainty of the depth or length of the crisis. However, we would recommend that the business prepares a financial forecasting model that allows varying assumptions and delivers financial outcomes based on those assumptions. We would then recommend that the business prepares at least three different scenarios – an optimistic, middle and pessimistic – and review the financial outcomes for each. The financial model should indicate the financial outcomes of each scenario including monthly Profit & Loss and Cash Flow. This will allow the business to evaluate different scenarios and the impact of different actions on the financial position of the business.
– the business should then prepare an action plan, for both short and medium term actions, based on the risk assessment and impact evaluation. This action plan should be detailed and measurable with clear owners of actions and accountability. This action plan should include evaluating the different support packages being made available by Government through agencies such as the Local Enterprise Offices, Enterprise Ireland, SBCI, the Revenue, etc.
– the business should keep the action plan under continuous review to ensure that the actions are being carried out and that such actions are delivering the expected outcome. In the current circumstances, we would also recommend that the business revisit the risk and impact evaluation exercise on a timely basis and re-run the financial models. This may lead to a change in the actions required. By “timely” we would recommend that this be twice monthly initially and then move to monthly and eventually quarterly once the crisis abates.
This type of framework is a common exercise for multinational businesses who have the internal resources to carry out such in depth analysis. We would recommend that small to medium companies use external consultants such as Coombes Corporate Finance (“CCF”) to drive, coordinate and deliver this framework for your business. CCF has over 30 years of experience in both practice and industry and we can manage the business through this process. Furthermore, Enterprise Ireland and the Local Enterprise Offices provide funding assistance for companies to carry out this financial planning exercise.
As noted above, the action plan should include evaluating the different support packages being made available by Government through agencies such as the Local Enterprise Offices, Enterprise Ireland, SBCI, the Revenue, etc. CCF can evaluate the appropriateness of the supports being offered and assist you in securing such supports.
Protect your business by scheduling your free consultation today.
or by calling: 086 6817103.
Are you an accounting or taxation practitioner?
Then I can add to your profit line.
My name is Frank Coombes and I am a corporate finance specialist with over 20 years’ experience.
I can work with your clients to successfully complete a corporate finance transaction be it:
I bring specific corporate finance expertise and experience to these transactions and thereby delivering the first class service that your client expects. This is done while still delivering to profit line of your practice.
Below are 3 examples of how Accountant or Taxation practitioners can help clients who are considering succession planning and want to extract value from their shareholding:
Perhaps you have a client who is considering succession planning and wishes to exit the business through the sale of their company?
He or she will want to maximise the return on their lifetimes work.
In this situation:
In essence we are working in partnership, each delivering our own expertise, to deliver a first class service to your client.
This is all achieved while still delivering a return to your profit line.
Another example may be that your client, (instead of wanting to sell their business) wants to pass it onto a family member or indeed onto loyal management within the company.
Your client would still like to reap the financial return for their hard work.
In this situation:
Here again we can work in partnership and pool our expertise to deliver a first class service and result for your client, while still adding to the profit line of your practice.
Perhaps your client would like the idea of taking some money “off the table”.
They can sell some of their shares now while bringing in a financial partner to help them grow the business further with an ultimate disposal in five plus years.
In this situation:
Again in this transaction, I will partner with you practice, adding my expertise to yours to deliver a first class service to your client while still adding to the profit line of your practice.
Perhaps your client wants to buy another business.
In this situation:
Perhaps your client needs to raise finance – either to expand organically or to complete an acquisition.
In this situation:
I can partner with you to pool my corporate finance expertise with your accounting and taxation expertise to deliver a first class service to your client while still adding to the profit line of your practice.
Interested in learning more or discussing specific client situations?
Get in touch today, with full confidentiality:
Tel: +353 (0)86 6817103.
Frank Coombes and Coombes Corporate Finance have led a number of disposal assignments. These include the following:
The following are some of the acquisition projects led by Frank Coombes & Coombes Corporate Finance:
Frank Coombes and Coombes Corporate Finance have led a number of fund raising assignments. These assignments include the following:
The process of raising finance is expensive, time consuming and demanding on the company’s resources. Therefore when completed, there is a sense of jubilation as well as relief. However, reality is that once funding is agreed, the ‘real’ challenge begins, the challenge of delivering on the investment potential. So what can the company do to enhance its chances to reach its potential?
One of key tools that should be put in place is a Performance Measurement and Reward system. Such a tool will monitor the progress of the company against its objectives and peers, and motivate staff to collectively deliver the vision, strategy and objectives of the company. The key building blocks are:
An accepted phenomenon is that ‘what gets measured gets managed’ as its focuses the participant’s minds on that being measured. Traditional accounting measures, in the form of management accounts, are very limited in providing a complete measurement tool as:
A more useful measurement tool is Kaplan and Norton’s ‘Balanced Scorecard’ which compliments ‘financial measures with operational measures on customer satisfaction, internal processes, and the organisation’s innovation and improvement activities that are the drivers of future financial performance’. The tool has four dimensions namely, Financial, Customer, Internal business and Innovation & Learning perspectives. The Balanced Scorecard not only measures past performance, but also puts on measures that monitor aspects that will effect future return to the company.
The Financial Perspective should include the traditional measure of comparing actual results to budgeted and/or forecast. The company should also focus on the ‘key financial drivers’, drivers that will deliver the preferred financial results of the future. These might, for example, in a technology company include analysis on sale leads and orders, analysis of product mix and their contribution to the company’s bottom line or labour cost as a percentage of sales revenue.
The Customer Perspective needs to focus on the needs of the company’s customers. Measures should be put in place to evaluate customer satisfaction with the company’s products and pre and post sales service. This might include delivery lead times, number of defect products, how long it takes customer service to respond to a customer inquiry or the volume of repeat business, which is the ultimate measure to customer satisfaction. A word of caution, make sure that the item that you are measuring is important to the customer, for example there is no point in measuring if customer service answers the phone within 10 seconds if the customer is not concerned about this.
The Internal Business perspective should focus on the internal items that the company needs to excel at in order to succeed. For example, in a technology company a key item is its ability to recruit and retain software developers, hence a measure may be staff retention measures. Other measures would include production efficiency and production quality measures.
The Innovation and Learning perspective focuses on items that will ensure the company can continue to improve and create value. This would include measures on employee competency, training provided for employees and process change and improvements.
Once the company has established what should be measured, it then needs to establish
The measure owner is the individual or group of individuals who have the greatest influence on that being measured. It is important when setting measures and the targets in particular, the measure owner is involved and ‘buys into’ both the method of measuring and the target being set.
The target needs to be stretching of the owner’s ability but yet achievable and fair. This will ensure that the owner is motivated and focused on the key drivers for the company. It is also important to include some form of benchmarking, comparing performance with both internal peers and external competitors. The external benchmarking will ensure that the company keeps a focus on the market environment outside the company.
The targets set need to be reviewed on a regular basis to ensure that they remain realistic and equitable while bringing the best out of the owner of the measure. Targets would need to be changed if they were not correctly set initially or if there is dramatic change in the environment that the company operates.
The reward system is used to guide individuals to deliver the standards set out above. The system should be clear, motivate the individuals who are included and the outcome needs to be in the control of the person being held responsible.
The reward system needs to be clearly linked to the measures and targets set out by the company. These links should be clearly understood by all employees. The individuals should know what the company is trying to achieve, what is expected from them and how they contribute to the overall success of the company.
The reward system is intended to be motivating, hence the rewards should encourage the right behavior. They should rewards that the employee is willing to change his behavior to achieve, i.e. be worth the effort.
The objective of the setting up a Performance Measurement and Reward system is to motivate individuals to deliver on the potential of the company. Therefore the company needs to clearly define its vision, the strategy it has to achieve this vision and the stepping stone objectives in delivering the strategy. The Measurement & Reward system should than be tightly linked to these objectives.
Apart from being a motivation tool, the benefits of a Performance Measurement & Reward system are:
Once put in place, the system can be the difference between the vision becoming reality or just remaining a vision.
This is the Second of a series of 6 articles aimed at Owner Managed Businesses addressing various issues that they face through the complete business cycle from Start-Up, through expansion to final exit. By Frank Coombes, Coombes Corporate Finance
Owner Managed and Privately owned in Ireland are certainly in expansion mode. A recent survey in this sector showed that almost 30% of the sector expects to see some M&A activity within the next three years. The sector is seen as buyer as opposed to sellers. Discussions with financial institutions support this expansion mode as they see strong growth in the Owner Managed Sector. This expansion required capital investment. This article sets out the key steps in a fundraising process. It can relate to raising debt, equity or the various financial instruments in between and it can relate to fundraising for startup, expansion, project finance or acquisitions.
The fundraising process behind these transactions involves a number of stages, during the course of which a company appoints advisors, prepares a Business Plan, defines their funding strategy, presents to potential investors, undergoes a due diligence investigation and finalises the detailed legal agreements before finally receiving the investment funds.
For many Owner Managed Businesses seeking finance, they have a small core management team, a team that should be fully focused on delivering the objectives and goals of the company. The common error made is that during the funding process, management’s focus is distracted away from the development and operation of the company’s core business. On appointing Financial Advisors, the company can ensure that this distraction is minimised and the necessary skills to assist the fund raising process will be sourced.
The Financial Advisors should advise, manage, and work closely with management in executing the financing process. The Advisors will also have access to a network of contacts including financial institutions, private equity Investors, Venture Capitalists, and debt financing investors. It is this network of contacts that will greatly increase the company’s ability to raise the appropriate funding mix at the best value for the Owner Manager or existing shareholders.
Irrespective of whether you are raising debt or equity, it is important that the company prepares an informative, clear and concise Business Plan. Normally this plan is the investor’s first view of the company and in this situation, first impressions are vital. The Plan should include a short executive summary and sections on:
Any potential investor will focus on the experience and expertise of the management and the exclusivity and growth potential of the company’s market. These two sections should highlight the company’s unique selling points.
Once the Business Plan is completed and the amount of funding is established, the company should identify with its Advisors the key sources for its finance. The sources could include one or more of the following:
It is important to note that no one source of finance may be ideal to satisfy the full financing requirement, hence it is important to break down the funding requirement into various components. Each component may be financed from a different source. Once identified, the fund raising strategy should then be established with key steps and milestones in managing the process. Such a strategy should form the project plan in completing the financing process.
The Advisors, in association with the company, should then identify the potential investors, be they debt or equity investors. Initially a business summary is sent to potential investors and if they are interested the full Business Plan is forwarded for their consideration. If interested, they will then proceed to meeting the company.
This key part of the process will require significant time input from the core management team, as the investor wants to obtain a view of the team’s capability and experience. The presentation should be based on the business plan and delivered by members of the management team. It should highlight the core drivers and unique selling points of the company. It is also important, that the company and its advisors evaluate the potential Investor, as many investors will be actively involved with the company during the investment period.
Based on the business plan and presentations, the company should endeavor to receive offers of funding from more than one potential investor. This gives the company greater strength and flexibility for negotiation. Prior to selecting one offer over another, the company should evaluate the financial and non-financial issues of each offer of finance. It may often be the case that the long-term benefit that can be gained from the expertise of the investor may out weigh some short-term financial benefits. Where possible, all of the contentious terms of the potential agreement should be agreed prior to signing the Heads of Agreement. The heads of agreement will include:
For Equity investments the valuation of the company will be a key negotiating factor. The final valuation will usually come from detailed negotiations between the company, the Advisors, and the Investor but in the end it must be one that all parties are comfortable with.
On agreeing the Heads of Agreement, the due-diligence process begins. This will be on behalf of the investor and normally include:
This process can be the most time consuming part of the financing process taking 4 to 6 weeks for equity investors, but shorter for debt investors, and it is important that this process is managed correctly to ensure that no undue delays occur.
Once the Investor is satisfied with its due-diligence, they will then proceed with the company to drawing up final agreements. When these are completed and signed off by both parties, final approval is received and the investment can be exercised.
It is important to note the typical length of time that it takes to complete the financing process, particularly for equity investment. From the time that an interested Investor has been identified, it should typically take 12 weeks to complete the process. It is important to note this length of time when drawing up any financing strategy.
Once the financing has been received, all that remains is that the company and its management team deliver its objectives and maximise the full potential of the company!
Frank Coombes – Coombes Corporate Finance 021 4943944
This is the first of a series of 6 articles aimed at Owner Managed Businesses addressing various issues that they face through the complete business cycle from Start-Up, through expansion to final exit. By Frank Coombes, Coombes Corporate Finance
The climate for new start ups and company expansion has been very healthy over the last few years. In respect to Start-Ups, Venture Capitalists (VCs) invested €28m in 48 start-ups in 2004 versus €33m in 106 start-ups in 2003. Equity is also being invested into companies expanding with VCs investing €33m in 42 expansions/other type companies in 2004. The consensus is that this will continue, with a recent survey carried out by IBI indicated that almost 30% of privately owned businesses expect to see some acquisition activity in the next 3 years.
These projects require equity investments. However according to a recent survey by the Irish venture capital Association (IVCA), only 25% of the respondents expect to invest in new projects in 2006 compared to 80% last year. So what are the key weapons that will put you ahead of the pack in the battle for new Equity? The private company needs the following:
An investor’s evaluation will mainly be based on the strength of the company’s team. This is borne out by an IVCA survey with its members, where it stated that the biggest reason why their members turn away an application for funding is the lack of an experienced management team.
This team should include:
The CEO needs to show that he/she has got the vision for the company, clear direction on how to deliver this vision, and a high degree of energy to motivate all those around him/her to achieve the company’s goals.
The CEO should be supported at a strategic level by a well-balanced board and at an operational level by a dedicated workforce. The Board should comprise of executive and non-executive directors. The correct selection of the non-executive directors can add great experience and credibility to the business. Hence ideally the company should select people that are well respected within the business community.
As any start up or early stage company would tell you, the success of the business is very much dependant on its employees. It is important for any start up company to minimise the turnover of key staff so as to maximise the ‘knowledge’ retention within the company. Therefore, it is important to put in place such incentives as Share option scheme(s) and/or a profit sharing scheme so as to maximise staff retention. Investors will look very favorably at such initiatives.
It is also important to employ experienced advisors, particularly in the field of Corporate Finance. Too often the time and energy of the CEO and other key management is sucked into in the process of raising finance and away from their key operational and development responsibilities to the business. Therefore, it is important to employ advisers to reduce the burden on key management during the financing process. Well-established Advisors will also add value to the company through their contacts and experience.
The Investor will look for a clearly defined product, that is market driven and one that is valued by its potential customers. It is a common mistake when developing a product that it is driven by technical abilities rather than being a product or service that the market requires. Hence, in these situations when the product is developed it transpires that the market is very limited, non-viable or at worst does not exist at all.
In defining the product, the Company should identify the unique selling point (USP) of its product, i.e. what will differentiate it from any competing products. Ideally from an Investors point of view a new product should have a defined market and where possible have intellectual property rights attached.
The company should have a strong marketing plan that will form the blueprint for marketing and distributing the company’s products. In many investors’ eyes, a clear route to market is second only in importance to their assessment of the strength of the management team. Too often a company is very enthusiastic about a product but does not consider how to target the specific market. Channel management is key to the company’s strategy, as the investor will evaluate how quickly and efficiently the company can sell its product to its customers in an ever-changing market environment.
Ideally, the target market should be one that has great growth potential. Most Investors will prefer a market with growth potential in favor of a product that endeavors to capture market share from existing suppliers.
The importance of a good Business Plan cannot be under estimated. The Business Plan will be the key selling tool for your company in the process of raising finance and often it is the first view a potential investor will get of your company.
A good Business Plan needs to be informative, clear and to the point. The plan should focus on the unique selling points of the company and highlight the key ingredients looked for by investors, namely a strong management team and a well-established marketing strategy. Every business plan should be supported by a robust financial model, which highlights the business drivers and the potential return to the investor.
The competition between companies for investment funds in the present environment is fierce due to the high supply of quality investment opportunities. Hence the company that gathers together the key weaponry is well prepared for the battles of raising finance. Just remember that winning or losing any one battle does not necessary mean the end of the war!
Frank Coombes – Coombes Corporate Finance 021 4943944
Part of an ongoing series on issues arising with Owner Managed Businesses through their complete business cycle
Many Owner Managers find it difficult to exit their business as they are emotionally attached. However it is important to remember that the business is a “vehicle” for you to create income and wealth, and one that needs to be “driven” carefully in order to maximise your return. This is particularly important when it comes to the time you wish to exit the business, whether it is retirement or just moving onto something else, and that you prepare for the event years in advance.
The first and foremost preparation point is to ensure that the business is independent of you, i.e. that the business can function without your involvement. This requires that you have a strong management team employed in the key business areas and that this team works well together. A strong management team enhances the value of your business to a prospective buyer and conversely without a strong management, the business value is less. To put this in place can take significant time and effort in identifying the right people, putting succession planning in place, training them in the various management skills and ensuring they work well as a team.
Furthermore, it is important to ensure that all the key relationships with customers and suppliers do not reside solely with the Owner Manager and are passed onto or at least shared with another manager. Customers in particular are the life blood of the business and most customers like to do business with people, hence relationships are important. Therefore prepare by involving another manager in the customer relationship well in advance, bring him/her to meetings, golf outings, etc and let he/she become the “owner” of that customer.
An area that can significantly enhance the exit value for the Owner Manager is a well planned and funded pension scheme. Owner Directors can avail of significant tax efficient methods of getting value from their company that include tax relief on company contributions paid into the Owner Director’s pension with generous maximum contribution rates depending on your age; tax free growth on your money while in the pension fund; and the ability to take up to 25% of the pension fund out tax free when you retire. These pension funds have many rules and it is advisable to talk to you pension advisor a number of years in advance of an exit to ensure maximum benefit.
Careful planning of operational items will also enhance the value of your business. For example, you should put in place written contracts with your customers where possible. A potential buyer likes to see as much security of business continuity as possible and customer contracts gives the buyer this confidence. One thing to note in preparing such contracts is be aware of any “change of control” clauses that would allow the customer to terminate the contract if your business ever changed ownership. These should be avoided if possible.
The value enhancement brought by having customer contracts, can also hold true for suppliers and having contracts with key suppliers is important. However with suppliers, you will need to use your commercial judgement on the terms, ensuring the security of supply of key materials or services without over committing the business and any new owner.
Other items that should be planned in advance of sale to enhance value include:
The final step in maximising your value from the company is the sale or exit process itself. It is important to employ suitably qualified experts during this process to assist in maximising this value, as the process of selling a business is a delicate one and typically you get one chance to get it right. Having a well run sale process will significantly enhance your exit value and this process will include preparing a Information Memorandum or “Sales” document about your company; identifying potential buyers; ensuring confidentiality and managing sensitive company information; managing the buyers due diligence process; and managing the completion process including negotiating various legal agreements.
In summary, without trying to sound like a school teacher, good preparation will enhance the results and this is particularly the case when it comes to exiting your business, so don’t leave it to cramming the night before the exam!
It is important for every company to periodically evaluate where it is and where it intends to go in the foreseeable future. This is required, for example, when raising finance, considering expansion or even when there is a substantial change in the economic environment as we are currently experiencing. This evaluation is best achieved by answering the following questions:
These questions will entail a deep and honest look at your company, setting a strategy for the foreseeable future and setting goals and measures to manage the delivery of this strategy.
Where is my company at now?
The key place to start is a SWOT analysis of your business, a reality check of where your company is now and the opportunities and threats it is facing, focusing on all key aspects of the business, including:
The review should take each of these aspects and detail the company’s current Strengths and Weaknesses in each aspect; and outline the company’s potential Opportunities and Threats, again under each aspect.
Where do you/managers want this company to be in 5 years?
Following on from the SWOT analysis, you should prepare a five year strategy for the company in conjunction with your key management. This strategy will set out the vision for the business, supported by a detailed business plan that will set out how this vision will be delivered. The business plan should cover all the aspects outlined in the SWOT analysis, i.e. the market and the customer; the service delivery; the management and information systems. I would also recommend that you prepare five year financial projections as part of the plan.
This strategy and business plan should be written down and reviewed on a periodic basis. If required, the plan should be updated for changes in the environment the company operates.
How do I manage the progress of this journey?
The success or failure to deliver the strategy should be monitored throughout the life of the plan. This can be effectively achieved through a Performance Measurement and Reward system that will monitor the progress of the company and motivate staff to collectively deliver the vision, strategy and objectives of the company. The key building blocks of a good system are identifying what should be measured, what standards are set for these measures and what are the rewards for achieving the targets?
Most companies have the traditional accounting measures, such as management accounts. These are very limited as they measure historical information and it ignores other important areas such as customer satisfaction, process efficiency, etc. A more useful measurement tool is the ‘Balanced Scorecard’ which compliments financial measures with non financial or operational measures on areas such as customer satisfaction, internal processes, innovation, etc. The tool includes measures in four areas:
Once the company has established what should be measured, it then needs to establish the “owner” of the measure. This is typically the individual or group of individuals who have the greatest influence on the item being measured. Once the owner is identified, you then need to set targets for each measure in conjunction with the measure owner, so as to ensure ‘buy in’ both to the method of measuring and the target being set. These targets need to be stretching of the owner’s ability but yet achievable and fair.
It is also important to include some form of benchmarking, comparing performance with both internal peers and external competitors. The external benchmarking will ensure that the company keeps a focus on the market environment outside the company.
Finally ensure the measurement system is linked to the reward system as the reward system is used to guide individuals to deliver the standards/objectives previously set out. This reward system should be clear, motivating and the outcome needs to be in the control of the person being held responsible.