The Benefits of a Management Plan
The Benefits of a Management Plan to Buy or Sell a Business
Buying or selling a business is a complex matter. There is no question about it. The complexities start from the moment a buyer and seller start interacting but there is natural conflict in place. For a start, the buyer doesn’t have any history of the operation of the business and so has to rely entirely on the seller’s representations. Conversely, the seller has lived and breathed the business, and knows its upsides and downs including its strengths and weaknesses.
My Golden Rule when assisting with a business transaction is for each party to put their feet in the shoes of the other party. In other words, the seller should see things from the buyer’s perspective and the buyer should see things from the seller’s perspective.
A key way this would help a business transition from a seller to a buyer would be if the seller used a Management Plan.
What is a Management Plan?
From my perspective, a Management Plan is where all the critical areas of a business are summarized so if the owner of the business wins the lottery and never wants to work another day in their life in the business and not come to work tomorrow, the business will still survive and grow.
What are some things to include in the Management Plan?
At a minimum, the Management Plan needs to include a summary of key business information. This includes the following:
- A current and monthly updated summary of all the employees in the business. The rule should be that if an employee needs to be contacted, their information should be available in less than one minute. This information needs to include emergency contacts of each employee if they are willing to provide it and if your State government agency allows you to collect it.
- A current and monthly updated summary of all suppliers. All suppliers may be too much but at least the suppliers that supply any critical materials or provide more than 5% of the company materials.
- A current and monthly updated summary of all business support services such as the CPA, attorney(s), financial planner(s), landlord, lenders, and government agencies in case any are needed urgently.
- A critical document that would help any buyer is seeing the Business Training Manual. Again this document should be kept up to date and break down each of the current positions in the business. If the company doesn’t currently have this document, start creating it. It’s straightforward to do. Have the current person employed in that job write down what they do. It is then presented to another member of the business who is instructed to execute what’s provided. If they can, then the job is done. If they can’t, it goes back to the person who wrote it for re-writing. If some employees don’t want to write the document because they are concerned they will be let go if they can’t provide an adequate explanation, hire a student from a local college to come and write things up or hire a technical writer to help with the writing process.
- In addition to the Training Manual, put together an Operations manual. Michael Gerber is the master of written procedures. He’s written numerous books including The E Myth and The E Myth Revisited. Very simply, Michael Gerber believes that being a true entrepreneur is being able to take an idea and break it down and write to the point where each person in the enterprise knows what they need to do to collectively make the enterprise successful.
This is the purpose of the operations manual to clearly state the business process to achieve an outcome.
For example, a fast food restaurant that sells hamburgers. Let’s choose the person that makes the fries. The Operations Manual would break down each step of that process. It starts with where to get the fries, what to do when the quantity of fries in the storage area gets to a critical point and what to do to order more; what temperature they should be stored.
The next steps would detail what temperature the oil needs to be to cook the fries, for how long, and in what container. Now detail what to do with the fries when they are ready, how much salt to add, and in what container to place the cooked fries. Where the containers are stored and what to do when you reach a minimum threshold. You can do this in more detail but the beauty is that once this is done, it only needs to be checked monthly and now consistently you can cook and deliver the best fries in the world.
It may seem like a lot of work putting these things together. These suggestions are the tip of the iceberg. What else can you document to make your business easier to operate? Using technology can make doing this so much easier. And remember to make sure you have a backup so all your hard work is not lost.
The most important reason to do this is that by creating this Management plan, your business will be of more interest to the right business buyer.
In real estate, there is a rule called the principle of comparison. In simple terms, it says that when a buyer is looking to buy a house, they will buy the best option not only on price but also by comparing it to other houses for sale in that area. If the buyer wants a 3 bedroom, 2 car garage, 2 bath house in a specific school district and they have 3 to choose from, they will not necessarily make their final decision on price but the deciding factor could feature instead. For example, if one has a swimming pool it might win out for that reason. The bottom line is that a strong and laid out Management Plan adds value to a business being sold.
Part 8 of this article series looks at the value of creating a Productivity Plan and its importance in defining what and how things need to be done so the business is successful.