Writing your own business plan can seem like an overwhelming task, however as long as you can identify the key components of your business, it doesn’t have to be difficult. The key is to create an internal working business plan before you start on the more complex business plans for banks and investors. Once you have created your internal working plan, creating more official business plans are a snap.

When writing your own business plan, there are 4 basic components to the content and analysis:

1.Product or Service

Every company creates something of value for the consumer, regardless of whether it is a product or service. By truly understanding what value you are providing to your customers, you will already have all of the information necessary for formal executive summaries, about us, and the company description.

2.Customers

When it comes to your customers there are several important aspects that you need to understand. The first is who are your primary customers going to be. By identifying your customer profiles, it is much easier to know who you will marketing to. Different customer bases require different strategies and tactics.

Next, you must understand how many potential customers exist. If there are only 10 people who want your product or service, then your business will not be very profitable. The easiest way to determine how large your customer base may be is to look at your competitors that are already targeting your customer base.

In order to do this, you must be able to clearly identify who your competitors are. By knowing this information about your potential customers, you will be able to create formal market analysis, primary and secondary markets, marketing strategy, marketing plan, market size, and competitive analysis.

3.Action Plan

Now that you have identified your customers, it is important to create an action plan and set of goals. What will your company look like in 1, 3, and 5 years? This questions will help guide what actions need to be taken. Additionally, you need to create short term goals that can be accomplished within a few months or even a year. Finally, what steps will need to be taken in order to achieve your goals and projections. This information will later help you create your implementation strategy, milestones, time-lines, and exit strategy.

4.Show Me the Money

When it comes to your finances, there are two basic facts that need to be identified. The first is how much money it will cost to create your product or provide the services. The second is how much money you will charge in order to create a profit. These two pieces of information will help you create your financial analysis, financial projections, profit/loss statement, income statement, cash-flow projections, and startup costs.

By understanding these four concepts and creating an internal business plan, writing your own business plan will be simple. All of the information that you gathered for your internal plan, can easily be reformatted and modified to create more a more formal version for banks and investors.

As most people know, the brain is a very fragile part of the body so any injury to this area can be potentially life threatening if the brain is seriously affected. Once the person

Incapability Dismissals

Contrary to popular belief ‘ill health’ is a potentially fair reason for dismissal since it relates to the employee’s capability to perform the work that they were employed to do. However, in the context of incapability dismissals, the Employment Tribunal will scrutinise the procedures followed by the employer prior to termination, in order to determine whether the decision to dismiss was reasonable in the circumstances. A ‘reasonable’ employer would normally be expected to consider all the relevant medical evidence, consult with the employee and consider whether there are any steps that could be taken to assist the employee in returning to work. (Employers should also be mindful of the disability discrimination legislation and the need to make reasonable adjustments.)

But what if the employee’s ill-health was caused by the employer in the first place? Should this be taken into account when deciding whether the employee’s dismissal was reasonable?

This question was recently addressed by the Employment Appeal Tribunal (EAT) in the case of Royal Bank of Scotland Plc v McAdie (2006).

The Facts

Ms McAdie went off sick with work-related stress following her employer’s failure to adequately address her grievances and the intimidating manner in which the process had been handled. After 9 months’ absence, Ms McAdie was referred to an occupational health doctor who diagnosed “severe adjustment disorder, secondary to alleged work-place issues, including harassment”. The doctor expressed doubt that the condition could be treated due to the depth of ill-feeling held by Ms McAdie and concluded that a return to work appeared impossible. Following this report, Ms McAdie was dismissed on grounds of incapability. She subsequently brought a claim for unfair dismissal.

The Employment Tribunal initially upheld her claim, finding that her ill-health had been caused by the manner in which the Bank had dealt with her grievance and that this was crucial in determining the fairness of the dismissal. In the Tribunal’s opinion “no reasonable employer would have dismissed in these circumstances, because no reasonable employer would have found themselves in these circumstances. A reasonable employer would have investigated the matter properly at an early stage.”

EAT’s Decision

However, the EAT overturned this decision. In their view, the fact that an employer may have caused the incapacity did not mean that it could never effect a fair dismissal. Whilst the cause of an employee’s illness was a factor to be taken into consideration, the focus must always be on the reasonableness of the employer’s actions in the circumstances that existed at the time of the proposed dismissal – not whether the employer should have got itself into those circumstances in the first place.

In the present case, the medical evidence was very clear and the simple fact was that there was no alternative to dismissal. The Bank’s decision could not therefore be said to be unreasonable. The appeal was allowed and the claim dismissed.

Comment

The case of McAdie serves as a useful reminder of the dividing line between unfair dismissal claims and personal injury claims. Save in the context of discrimination cases, the Employment Tribunal has no jurisdiction to hear claims for personal injury. The appropriate course of action for an employee who suffers injury (physical or mental) as a result of a breach of duty by their employer, is to bring a personal injury claim in the civil courts. However, this will require the employee to show that the injury suffered was reasonably foreseeable and this can prove to be a significant hurdle, particularly in “work-related stress” cases.

AND IN OTHER NEWS…

Flexible Working Extended to Carers

The Government has published the Flexible Working (Eligibility, Complaints and Remedies) (Amendment) Regulations 2006, which extend the right to request flexible working to certain carers of adults. The Regulations will come into force on the 6 April 2007 and will extend the right to request flexible working to employees who are, or expect to be, caring for a person who is over the age of 18 and in need of care, and who is either: married to, the partner of, or the civil partner of the employee; a relative of the employee; or living at the same address as the employee. The right is subject to a qualifying period of 26 weeks continuous employment.

Disability by Association

Carers of disabled people may acquire further legal rights following the referral of Attridge Law v Coleman to the European Court of Justice. Although most discrimination legislation protects employees from detrimental treatment on the grounds that they associate with someone in a protected group (e.g. a white employee dismissed for marrying a black person), the same does not apply to the Disability Discrimination Act 1995 (DDA).

On the face of it, the DDA only applies if the employee themselves are a “disabled person”. The issue before the ECJ is whether the DDA should be given a wider interpretation so as to prohibit discrimination of an able bodied employee on the grounds of their association with a disabled person. If the claimant’s case is upheld, the scope of the DDA will be significantly extended.

The Challenge

This past year has been a difficult one for business owners seeking an exit. Is this the recession, or a reflection of a longer term reality? The answer, it seems, is that exiting business owners will need to engage a new reality for the foreseeable future. According to an article published by Robert Avery of Cornell University in February 2006, “the majority of boomer wealth is held in 12 million privately owned businesses, of which more than 70% are expected to change hands in the next 10 to 15 years.” Only a portion of these businesses will successfully cash out, because of a fundamental oversupply of sellers.

Key Mistakes Sellers Make

Business owners make a mistake when they allow too little time to complete a properly executed business exit strategy. Another mistake owners make is focusing on the price while disregarding the terms and structure of an exit transaction. Other key mistakes business owners make in exiting their companies are:

• selling to the (only) competitor who approaches them
• not using experienced advisors (hoping to save transaction costs)
• setting expectations based on personal needs and without reference to the market
• failing to explore legitimate positioning strategies

Buyers of middle market companies don't buy jobs for themselves in the way that small business buyers do, they “invest” with the expectation of a return commensurate with the risk. Nothing enhances a buyer's perception of value more than:

• evidence of sustainable growth
• a capable management team as the key to managing the risk

The Business owner who engages professional advisors, plans thoroughly, and negotiates to ensure that the wealth transfer mechanism chosen most closely delivers on his goals is the business owner who will have executed the optimal exit strategy.

Characteristics which Appeal to Buyers

If the fundamental laws of risk and reward prevail, only the least risky and most profitable businesses will change hands successfully. With buyers focusing on businesses which represent good investments capable of operating with little or no dependence on their owners, the following characteristics will be seen as desirable:

• Businesses which have scaled beyond a total dependence on the owner
• proprietary products, services or processes
• strong, remaining management
• defensible, differentiated market position
• stable, diverse customer base
• recurring revenue business model
• business growth (opportunities)
• strong operating margins
• manageable business risk
• quality business and accounting systems
• audited annual and timely internal monthly financial statements

Defining the Exit

Exiting is more than Selling
Exit Planning is a process involving the development and execution of a series of systematic steps taken to allow both the owner and the “accumulated wealth” to be extracted from the business, via one or more of the numerous available strategies, including:

• Selling the business to partners, strategic buyers, investors, competitors, international buyers, or the public
• Recapitalizing the business for partial liquidity
• Merging the business to achieve enhance valuation and/or marketability
• Transferring the business to family, management or employees
• Gifting the business to meet personal and/or tax planning goals
• Liquidating or partially liquidating the business

Exiting is a process, not an event.

The Optimal Exit will be achieved through the implementation of a managed process which includes:

• Establishing a business valuation reference point
• Clarifying “Life-after-Business” goals
• Working with a team of specialist advisors
• Preparing a written plan ? Identifying and evaluating the applicable alternative strategies (options)
• Executing any necessary positioning or preliminary strategies
• Executing the selected exit strategy

Exiting is a complex subject with many moving parts. No single advisor is an expert in all aspects, so the process should involve inputs from a team of experienced advisors, and should address the possible need to re-position the business before going to market.

Setting Goals

Clarifying the Endgame
The Exit Strategy begins with the M&A Advisor providing a likely range of the pricing, terms and structure expected from a sale in the current market. The Financial Planner or Wealth Manager then develops a plan to invest the after-tax wealth extracted from the business to meet lifestyle and life-after-business goals. For the majority of business owners, this newly liquidated business wealth will constitute a meaningful portion of the total wealth driving the financial, tax and estate plans. The key, then, to beginning the exit planning process, is to clarify the endgame, taking into account the likely value of extracted business wealth.

• Legacy Goals – what will have been your contribution?
• Lifestyle and Life-after-Business Goals – what do you want from the next phase of your life?
• Estate Planning Goals – how will you ensure that your estate passes to your heirs in the most tax efficient way?
• Exit Strategy Goals – based on all of the above, what are the priorities to be met by your selected exit strategy as to risk, time, wealth and income?

Selecting a Team

Play the “A” Team
The M&A Advisor should assemble and coordinate a team, including existing advisors where applicable, that will ensure:

• access to all appropriate options and opportunities
• being fully informed as to the merits and demerits of proposed strategies
• having expert counsel and representation

The team must include the necessary knowledge, skills and experience in Mergers & Acquisitions, Corporate Law, Taxation and Financial Planning/Wealth Management. It may also include specialists in ESOPs, insurance, personnel and business consulting disciplines.

Writing a Plan

Planning Precedes Execution
Business owners should not expect to exit successfully in the next 10 years without figuring out how best to exit and what preparatory steps should be taken.and should not assume they can wait until they are “ready”. While the critical execution phase will not be a problem for most take-charge entrepreneur business owners, the planning for an exit will be foreign to them as exiting has never been their purpose. Their purpose has been to create and build, and to consider the exit (if at all) a retreat. The M&A Advisor should coordinate a collaborative team effort to prepare a written Exit Plan incorporating a valuation of the business, a statement of goals and objectives, a review of alternative strategies (options), an analysis of the gap between the goals and the options, and strategies for closing the gap.

Reconciling Goals and Options

Once one has established an indication of the Expected Wealth Transfer (the after-tax proceeds from the business exit) on the one hand, and an estimate of the Targeted Wealth Transfer (the wealth transfer required to provide the personal life-after-business goals) on the other, the business owner and the exit team must now reconcile the two before selecting and implementing an exit strategy. Whether or not the expected and targeted wealth transfer values are the same, the owner should review all exit options, and should also evaluate a number of Positioning Strategies for execution prior to implementing an Exit Strategy. Reconciliation or Closing the Gap is an iterative process of evaluating combinations of positioning and business exit strategies that will yield a release of wealth (the Expected Wealth Transfer) compatible, as to quality, time, value and certainty, with achieving the specified goals and the associated Targeted Wealth Transfer. Closing the gap may also involve modification of the Targeted Wealth Transfer. Again, notice that there are two key points of inflection for matching the exit with the personal goals:

1. The ability to vary the value, timing and certainty associated with extracting the business wealth
2. The ability to vary the timing, risk tolerance, estate wealth, living standards and other variables inherent in the personal goals

A key issue business owners face in considering Positioning Strategies is the very central question of the risk – reward paradigm. Positioning strategies cannot be executed entirely without risk, but manageable risk strategies may deserve consideration if they serve to better ensure that the business wealth will be delivered in the context, amount, time and certainty needed to meet the identified personal goals.

Positioning Strategies

Corporate Value Enhancement
The team should look at the corporate structure and governance mechanisms to consider whether the business is optimally positioned for the intended business exit. For instance, an asset sale from a C Corp could result in tax obligations at both the corporate and the individual levels. Conversion to an S Corp may be advantageous, but the tax benefits vest over an extended period of time. The make-up of the Board and any Advisory Board may also have an impact on the value perceived by a buyer. Management strength is considered below. From the standpoints of scale, product or market diversity, management strength or any number of others, the business may benefit from a combination with or consolidation into another business prior to its sale. Alternatively, it may be desirable to spin-off one or more non-synergistic or non-performing divisions to increase profitability or allow greater management focus.

Business Value Enhancement
Business value enhancement strategies generally influence valuation because of their perceived impact on risk, growth or profit margins. At the top of many buyers' lists is the need to see a strong, experienced and motivated management in place. For financial buyers, this often includes the need to be assured that management has skin in the game, typically an equity interest. Improvements in profit margins are strongest when they are reflected in trailing (historical) earnings. More recently effected changes, or even planned changes, can also influence valuation, however, if the benefit of the changes can be quantified and demonstrated. Because of the multiplier effect built into earnings-based valuations, a mm earnings improvement may increase the valuation by, say, mm. It doesn't seem entirely logical that an exiting business owner would have unexplored opportunities available for making improvements to the business. It's a little like living with an outdated kitchen and upgrading just before selling the house. As in the real estate analogy, the stakes are higher at the time of exit, and the focus on marketability and valuation greater, so these opportunities often do exist. Other business value enhancement strategies include:

• Reviewing and revising the revenue and/or business models
• Implementing product / market enhancement plans
• Expanding and diversifying the customer base
• Securing title to patents and intellectual property
• Commissioning of financial and operational audits
• Strengthening or upgrading of systems and procedures
• Documenting or codifying contractual relationships (employees, vendors, customers, debt)

Business Marketability Enhancement
If growth opportunity, managed risk and strong margins are the foundation for building value enhancement strategies, then clarity, transparency and certainty are the engines which drive marketability. Business performance is clearly reported and accounted for, activities and status are transparent to the buyer, and all information portrays a level of certainty about the future. Experienced buyers know that completing acquisitions is a time-consuming and expensive exercise. Buyers will perceive greater clarity, transparency and certainty, and therefore be more motivated to engage, when the seller has:

• Audited financial statements
• A business plan with a clearly defined growth path
• An in-place sector-experienced management
• Current market metrics and analysis

Multi-Step Liquidation Strategies
Reference is made above to the risk-reward paradigm. This fundamental reality plays out in ways too numerous to mention, including strategies elected by business owners to both take cash off the table to reduce risk/exposure as in a re-cap, and assume reasonable risks for an enhanced valuation as in an earn-out structure. Consider:

• The lowest price is an all cash price (not often available in today's market)
• Waiting before selling is risky
• Participating in an industry consolidation or roll-up increases the risks and uncertainty of an exit, but potentially enhances marketability and yields a greater valuation

A classic two-stage exit is accomplished by means of a re-capitalization in which an investor / partner / buyer acquires part of the business with an expectation to either buy the rest of the business or to market the business in cooperation with the remaining owner at a later time and at a greater valuation. The owner takes some chips off the table, but retains a stake, and usually continues to participate in management. Merging the business into one or more other businesses before exiting can lead to increased marketability and even an improved valuation sometimes referred to as multiple bump. Consider a mm revenue business with earnings of mm which commands a valuation of mm (or a 5 multiple). Combining that business into a 0mm business with earnings of mm and which commands a valuation of mm (a multiple of 6), now values the original company's participation at mm, and the consolidation strategy has yielded a mm valuation gain.

Transaction Structuring Strategies
Every step along the complex path of executing an exit strategy demands access to advice from professionals who have been there and who know the opportunities and the pitfalls. Even though the structuring of the exit transaction comes toward the end of the process, structuring is included here as a positioning strategy because it impacts the value of the Expected Wealth Transfer. Key structuring considerations include:

• Considerations of risk and reward
• Tax considerations
• What incomes and expenses are included (i.e. belong to the transacted business)?
• What assets and liabilities are ex/included
• What pre-transaction liquidation, settlement/exclusion opportunities exist?
• What relationships between buyer and seller arise? (employment, advisory, landlord, supplier, partners, etc.)
• Documenting or codifying contractual relationships (employees, vendors, customers, debt)

The majority of middle-market businesses bought and sold derive their valuation, at least in part, from cash flow or earnings. The very key question then arises: “What assets and liabilities are essential to and an integral part of the ongoing enterprise, thereby supporting the established earnings flow?”

Exit Strategies

The business owner should have his M&A Advisor prepare an analysis of the fit and applicability of each of the exit strategy options to the stated goal and objectives. Not all options will fit every business or every set of goals. Individual strategies might include:

• Sale to Partner, Competitor, Strategic Buyer, Financial Buyer, International Buyer, the Public
• Re-Cap
• Merge
• Transfer to Family, Management, Employees
• Gift
• Liquidate

Benefits of a Planned Exit

The primary purpose of approaching a business exit in a systematic, goal-focused and planned way is to dramatically increase the likelihood that the outcome will be optimal to the stated goals. The employment of a team of professional and experienced advisors will add a cost of, say, 3% – 6% of the wealth transferred, but will potentially add considerably more value by:

• mitigating against a failure of the mission
• dramatically expediting the mission
• intermediating the process to eliminate the risks associated with direct negotiations between principals
• increasing the negotiated value of the mission
• reducing the income tax burden
• helping to reconcile the Expected Wealth Transfer to the Targeted

Wealth Transfer

…not to mention providing the knowledge and human resources to navigate a complex and time-consuming labyrinth of decision making and task execution.