Discipline is key to success

..put very neatly by Thomas Huxley many years ago. He said,

"Do what you should do, when you should do it, whether you feel like it or not."

Due diligence in the downturn

An interesting article by James Harris, published yesterday on www.mandadeals.co.uk

There is more emphasis on due diligence than ever before. It's also more difficult, reports James Harris

An unforgiving market means dealmakers are being more vigilant. 'It's a product of the economy,' says Alistair Mackie, partner at law firm Holman Fenwick Willan: 'People are expecting the sky to fall on transactions, so due diligence is much more important.'

This has led to some changes. Mo Merali, head of private equity at Grant Thornton, says: 'In the last two or three years, sadly, we've seen a preponderance of vendor due diligence (VDD), which is slightly contradictory. If you're writing a report about a business and being paid by that business, surely there must be doubts as to the report's veracity. Thankfully VDD is much less prevalent now.'

It is not just the balance sheet that is subject to greater scrutiny. According to Merlyn Gregory, manager of diligence services at Calash, all aspects of the business are now being held to a harsher light.

Says Gregory: 'In the past, commercial due diligence was seen as an ancillary service and often had little relevance to whether the deal would go through. It's no longer a matter of conducting a bit of market research; we're expected to look at everything from operations to strategy and people are seeing real value in it. It's not just because times have changed, but because commercial due diligence is a more established market.'

In essence, the change means that the right questions now get asked: 'After we uncover an issue, the price is renegotiated, and this is happening several times, so deals are becoming longer and longer. As things pick up, I don't think people will look at the smallest details as much.'

How much?

Owing to the increasingly difficult environment, assessing value has become a minefield.

Intangible assets, such as human capital and goodwill, have proved particularly difficult to assess. Mackie says: 'People have had to challenge assumptions about businesses' goodwill. Forward sales are difficult to predict; you can't make assumptions about growth any more. Every part of the business is being stress-tested.'

Pension fund investments have also been hard hit. 'Pension funds have taken a real knock on stock markets,' says Mackie, and it might be hard to know how much value has dropped if actuarial information has not been updated.

For the international business, foreign currency conversions are also problematic. As the sterling continues to fluctuate wildly, businesses with European or American creditors may find themselves owing that much more, and as Mackie points out: 'British businesses will find everything more expensive, especially in Europe.'

Merali advises businesses to keep it simple: 'The key focus should be on the cash generation side of the business. It's all about actual earnings; it's hard to trust anything else.'

Price: Quotes to make you think

"It is unwise to pay too little. When you pay too much, you lose a little money; that is all. When you pay too little you sometimes lose everything,because the thing you bought was incapable of doing the thing you bought it to do.

The common law of business balance prohibits paying a little and getting a lot. It cannot be done.

If you deal with the lowest bidder, it is well to add something for the risk you run and if you do that, you will have enough to pay for something better.

There is hardly anything in the world that someone can’t make a little worse and sell a little cheaper – and people who consider price alone are this man’s lawful prey”.

- John Ruskin

"The price of anything is the amount of life you exchange for it."

- Henry Thoreau

Peter Jones's view on the current climate

A new article on www.smallbusiness.co.uk by Peter Jones, which I thought would interest you:

‘We are out of the recession,’ says Jones
Jun 30 2009
'We are out of the recession,' says Dragons' Den star Peter Jones
Serial entrepreneur and Dragons’ Den investor Peter Jones believes UK businesses have seen the worst of the economic crash.
‘We are out of the recession,’ said Jones. ‘People will say we remain in a recession over the next 12 to 18 months but what we will be seeing from now on are just the consequences of hitting the bottom of the recession.’
Speaking at the BT Business Experience 2009 event in London, the Dragons’ Den star argued that if there was a better sense of entrepreneurship in the UK, then the recession would be ‘a lot more shallow’.
‘We lack the mindset of entrepreneurialism in this country. It requires forward thinking, clarity and self-belief and these need to be encouraged,’ he said.
By way of contrast, Jones noted that the US has a deeply-rooted culture of risk-taking. ‘We need more of that entrepreneurial attitude in this country and that can only happen through education,’ he said.
Jones has seen an unprecedented level of interest from young people in starting their own business, but he suggests many of them shy away from putting their ideas into action because the business skills of entrepreneurship are not taught in schools.
‘It’s all about education and that is why I set up the National Enterprise Academy,’ added the Dragon.
The Academy was set up last year and helps 16 to 18 years olds to study enterprise and entrepreneurship.

Reading to get you thinking

An interesting article on the perils of setting out in business.

The article appears to be based upon Michale Gerber's EMyth, a must read for all small business owners.

Hope this inspires too

“The best day of your life is the one on which you decide your life is your own. No apologies or excuses. No one to lean on, rely on, or blame. The gift is yours - it is an amazing journey - and you alone are responsible for the quality of it. This is the day your life really begins.”

- Bob Moawad

I hope this inspires

“Making your mark on the world is hard. If it were easy, everybody would do it. But it's not. It takes patience, it takes commitment, and it comes with plenty of failure along the way. The real test is not whether you avoid this failure, because you won't. It's whether you let it harden or shame you into inaction, or whether you learn from it; whether you choose to persevere.”

- Barack Obama