Posts Tagged: partnerships
For many managers, a management buyout (MBO) represents a way to find personal satisfaction by controlling your own destiny. It doesn’t hurt to know that it’s also one of the quickest ways to become an entrepreneur and achieve financial success. However, just like any business venture, it doesn’t come without significant risks. To help you learn how to successfully manage a management buyout, here are the biggest mistakes you need to watch out for.
Losing Sight of Your Core Business
When it’s all said and done, buyers usually spend anywhere from 3 to 9 months on an MBO. This takes into account target prospecting, negotiating a deal, arranging the finances and paperwork which takes up additional time. During that entire period, you can get caught up in the pending business acquisition that you lose sight of how much of the internal resources it consumes from your existing business. Keep your eye on your core business at all time, while using the remainder of your resources for the buyout.
Succumbing to “Deal Fever”
“Deal fever” is just another term used to describe managers who get so emotionally tied up in the process that they start ignoring the negative aspects of the deal in front of them only to complete it quicker. As a buyer, your main focus should be making the right deal, regardless of the time, energy and resources you invest.
Weigh the “pros” and “cons” and re-evaluate the deal regularly during the MBO. If you notice something’s off, potential deal breakers that you can’t re-negotiate, it’s better to walk away than strike a deal you’ll regret later on.
Not Creating an Extensive Shareholders Agreement
A Shareholders Agreement is the most important document in a management buyout. Creating a quality Shareholders Agreement includes a discussion on all the “what if” scenarios you and your managers might encounter during your MBO. These include: what happens if someone is fired, gets sick, or dies; what are the issues that will require a majority consent from all the shareholder; how does a shareholder exit and at what value are their shares sold.
When it comes to your own Shareholders Agreement, you need to spend as much time drafting it as possible. Openly discuss every possible situation and outcome of that situation with your partners, and only include the solutions you all agree upon. At one point all these issues can become reality, so it is important to get them out of the way now to protect the security of your future business acquisition.
Not Considering All Potential Financial Partners
There are numerous financial sources that can fund an MBO: banks, term lenders, vendor financiers, private equities, or subordinated debt providers. Banks, for example, are considered the cheapest option but have a strict return policy, unlike private equities which are more lenient and more expensive.
One of the leading private equity firms in Australia suggests you consider all the financial sources available before choosing the best one for you. Identify any potential short-term problems your new business acquisition and the effects your financial backing can have on your long-term goals. This evaluation will allow you to avoid the wrong financing mix for your MBO.
Not Making Hard Decisions
Many MBO companies have a hard time growing their business because managers don’t know how to make the hardest business decisions. You need to understand that fate of your new assets rests in your hands now. You will need to make tough decisions to expand your business in order to achieve a return on your capital investment. Number-driven decisions like downsizing or further investment need to be made to expand your business. Despite technically being a part-owner of the company, you might have to fire a member of your MBO team, or step down yourself. To achieve success, you need to do whatever it takes.
Not Being Patient
Ultimately, when it comes to MBOs, you need to understand that this is a long-term investment. And just like any long-term investment, it requires patience. You can’t expect a quick ROI, even in the best-case scenario. The best thing you can do is to focus all your initial efforts into paying out your financial debt ASAP. Afterwards, you can expect some return on your capital investment, but the more you grow and invest the more you will earn. It’s just a matter of time.
Ultimately, management buyouts represent a great financial opportunity for any businessman or manager with an entrepreneurial spirit. The key is to never lose perspective and to always keep an eye on the game. Some mistakes are going to happen, but learning from them will help you and your company grow. In turn, this will allow you to reap all the financial rewards that attracted you to a management buyout when you began your journey.
Doing business with a partner is a whole lot easier than taking on the business world on your own. However, taking on a business partner means constantly dealing with another person and there is a whole lot of things to cover in this part. This guide will help you learn how to achieve strong business partnerships. Forming a business partnership is a serious commitment relating to time, money and reputation. Sounds familiar? Well, like a marriage, business partnerships needs to be carefully and diligently nurtured.
Well, even though business partnerships are much like the relationship with one’s significant other, financing plays a key role in every aspect of business. Before you get in bed with your potential business partner, pay attention how they manage their money – this can tell you a whole lot about the way they will run your own business. For example, if the professional who you’re considering for partnering up with is buried under a large mortgage or child support, perhaps question your idea to run a business with him or her. Hefty financial obligations, a low credit score or spending beyond means are valid indications of partner reconsideration.
Consider a Partner Somewhat Opposite to You
I don’t know if the saying ‘the opposites attract in relationships’, but there is truth to this in partnerships. If you are a bit more on the creative side, look for more of a detail-oriented business partner and vice-versa – this will cover your shortcomings and provide for a successful business. Although shy entrepreneurs are often extremely efficient in performing business tasks on their own, a people-savvy business partner will perfectly complement them – you need to be able to focus, as well as to deal with people in business. Keep in mind, though, that you should find a partner who is complementary to your skill set and personality – there is more to this than picking your mere opposite.
A strong, quality and caring relationship is the backbone of any business partnership. You are more than simply people doing business together – you should be friends, at least to a certain extent. Avoid being condescending towards your partner and make sure that you occasionally surprise them with a gift (don’t go romantic here, aim at business-related stuff, such as a new smartphone, tablet or laptop). If both of you are going to a meeting, for example, opt for dialing chauffeurs Sydney and give them a chance to provide you with a ride to the meeting. This will go as something they’ll greatly appreciate and help you nurture your relationship with your partner, which is extremely important for success.
Running a business with a partner is somewhat similar to living with a roommate – there is a set of chores to be done and each one of the two of you should kick in. The best way to avoid unnecessary grudges and disputes is to come up with a weekly agenda that covers all the things that need to be done within the office – from meeting coordination to taking out the trash.
The best way to cover this is by drawing up the “chores” on a whiteboard and cross the items out one by one once completed. In this way, disputes will be whiskered away and the goings on around the office will run smoothly, making for a more efficient business and a more quality partnership.
Carefully taking care of and nurturing the relationship with your business partner(s) is a key way in running a successful business. If you are at a constant state of disagreement and dispute with them, well, they won’t do you much good and you might be better off on your own. By applying the advice above, however, you will be looking at a fruitful business relationship and a successful business.