Category Archives: Small Business Purchase

General IT, Small Business Purchase, Technical Debt

5 Simple Ways to Boost Technology Value Before Sale

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This article first published at the Axial Forum here: 5 Simple Ways to Boost Technology Value Before Sale and is reposted here with permission.

During M&A, seemingly small technology concerns can have material impacts on the ultimate valuation of your business. When selling your business, how can you improve your technology’s value and speed up the due diligence process?

Here are 5 simple tips.

(Note that these tips don’t address more significant technology issues like embedded technical debt, un-found software defects, or key security risks. Those types of issues need to be discussed and evaluated separately.)

1. Clean the garage

Ask any realtor: a clean and orderly house is easier to sell and will do so at a higher price than one that is disorganized or in disrepair.

Every company accumulates old technology that is no longer needed or used. Clean it up. Take a Friday, buy pizza and sodas for the technology teams, and have a spruce up day.

Sell or dispose of old printers, laptops, phones, computers, or servers that are no longer being used. Get rid of the accumulated boxes, old manuals, broken mice, computer monitors that only show green, and outdated cables and connectors.

Eliminate everything but what you know you have definite need and direct use for. Resist, with great aggression, the notion that “this may have value someday.” It won’t, especially not for your business’ new owners.

2. Take inventory of the technical assets

Know what you have and what the new owner will be taking over. You should already have an inventory of your technical assets, but if you don’t, create one now. This can be as simple as a Word or Google Doc, or an Excel spreadsheet that lists servers, software systems, infrastructure elements, employee devices, etc.

The inventory list also needs to show the purpose of the asset. If the server called “acmeacct” is the host server for the corporate accounting database then say that. If you have a Cisco router that interfaces with the WAN circuit to the remote office in Columbus, OH, then put that as the purpose. I recommend having hardware and key software systems listed on the inventory sheet.

An up-to-date inventory list will speed the work of the technical due diligence and improve the perception of the acquiring team.

3. Draw pictures

They say a picture is worth a thousand words. If you don’t already have them, create a few high-level drawings of the overall technical layout and architecture of the technology in the business. Those drawings will communicate, far better than any other medium, the technical relationships and dependencies for your acquiring team. Include the names of the assets, physical locations, and other pertinent high-level details on the drawings. Be sure and use the same names on your drawings as you do in your inventory lists.

The drawings don’t have to be professional CAD drawings. Simple PowerPoint block diagrams or even hand drawn pictures, as long as they are legible and accurate, will suffice for most businesses.

4. Police your policies

The state of your technology policies and procedures will communicate volumes about your operational condition to the acquiring team. Clearly written, accessible, and organized policies increase compliance and will improve the buyer’s perception of the value and capability of your organization. Password and security policies, backup policies, and software deployment procedures should all be documented. Especially if your business engages in regular credit transactions, the lack of security will increase perceived risk in the minds of the acquiring M&A team.

Before due diligence starts, review and update any policies or procedures that are out of date. Document missing procedures and communicate them to the organization.

Organize the policies and procedures and title them appropriately in a common place – this could be a shared folder on a company server, a list of Google documents, or a defined location on the corporate intranet. Every employee should know where these live and how they are accessed.

5. Rectify the roles and responsibilities

Acquirers will view your company’s employee base as a key asset during M&A. Certainly any good HR department will have a list of employees and job titles. But that list does not communicate responsibility or system expertise from a technical perspective.

The technology teams should have their own roles and responsibilities list that communicates what each team member is responsible for and expert in. When possible, the list should include the names of systems used in the other documents to facilitate better overall understanding by the acquiring entity.

Employees, Leadership, Small Business Purchase

Is your small business walking D.E.A.D?

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In the post-apocalyptic setting of The Walking Dead , zombies are everywhere preying on surviving humans for food. The Wikipedia article describes them as “…mindless shells driven solely by instinct”.

Did you realize that small businesses can become just like those zombies. The following four symptoms could mean that your business is  literally the walking D.E.A.D.

D – Directionless

Is your strategy missing or abandoned? Is your business is just doing the same thing year after year in spite of market signals and internal metrics telling you that’s not working?  Are you neglecting to act on customer feedback? Are you learning about your customers or market as the result of learning from experiments?

If any of these questions sound like the reality of your business then  you are directionless.

The market is moving around you, its going in a direction.  Your customers are being afforded more options, they are moving in a direction. Unless you have direction you can’t move, learn, adapt or advance as a business.  And if you don’t  advance you will be left behind, customers will migrate to your competitors.

E – Exhausted

The normal battles of small business fatigue the fittest among us. However, when the normal skirmishes are punctuated by more catastrophic events such as big sales declines, layoffs, product launch failures and the like, it can leave your team exhausted.

When you repeatedly expend large physical, mental and emotional efforts with no payoff, reward, progress or recovery it decimates your strength, will and energy. Exhaustion amplifies negative momentum, making it that much harder to begin new things or attack old problems.

A – Apathetic

Exhaustion leads to apathy. You are so tired you just don’t care. Apathetic employees are more likely to make mistakes, miss opportunities and ignore customers. Apathetic leaders will ignore issues, frustrate employees and abdicate their responsibilities.

Apathy invites bad customer experiences, neglected processes and procedures, lower morale and lower revenue and profit.

When customers sense apathy in an organization they will stampede for the exits and be easily seduced by your more caring competitors.

D – Distracted

Customer complaints are up 32%, yet you are picking out new chairs for the conference room. Sales for last month were down 18% following a 4 month trends, yet you are insisting on changing the fonts in your brochures. Your biggest account just cancelled, yet you want to attend a seminar on how color affects the mood in the office.   Are you more focused on choosing the new pens to hand out at conferences than you are focused on the fact that your marketing signups are down 31% year over year?

These are not contrived examples, they are real. I have seen them.

Distraction will always result in solving the wrong problem, missing the point, and ultimately missing key market or customer signals. Distraction can be deadly for a business.

You’re not dead yet

In The Walking Dead, the objective is to survive by killing the zombies.

However, if your business is D.E.A.D. you don’t need to kill it.

There are ways you can revive a D.E.A.D. small business. Look for those in the next post.

Small Business Purchase

3 lessons M&A teams can learn from Target Canada

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In his poignant article for Canadian Business entitled “The Last Days of Target Canada“,  author Joe Cataldo, describes the birth, short difficult life and painful death of Target Inc’s expansion into Canada.

The story is instructive for any business person to read and reflect on. However, there are three specific takeaways that apply to M&A deal and integration teams.

Know Your Systems

One of the fateful decisions the Target Canada team made was to forgo the use of the existing world class, US based, retail IT system and instead go with a new off the shelf ERP system and vendor. The US system did not support foreign currency and had some other short comings related to business in a new country.  In creating the new system to manage purchases, ordering, distribution and inventory control, enormous amounts of data regarding thousands of products had to be ported. Assumptions about the data led to gross inaccuracies which resulted in huge inventory problems and impacted stock available at new stores.

From an IT perspective, extending a known is sometimes more doable and more predictable than starting over, even with a reputable off the shelf vendor.

When an M&A transaction involves integration of data heavy systems detailed analysis is needed to uncover potential incompatibilities, assumptions and requirements. In the Target Canada case, simple issues such as the use of metric vs. english units and the order of package dimensions (length, width and height) caused considerable problems with data impacting factory orders, store inventory and distribution to stores.  By knowing some of the fundamental requirements up front in the deal planning process a more realistic schedule, and manpower framework can be established.

Bound your Scope

Due in part to the pressure of a $1.8 billion investment in lease purchases for Canadian real estate, the Target Canada team was tasked with the goal of opening 100+ retail locations in just over 2 years. This work not only included the retail locations but three distribution warehouses as well. This was a ‘from the ground up’ attempt to be fully functional at scale and profitable within three years.  In hindsight, this scope proved extremely difficult to manage.

In a small or medium size business transaction, scope of the deal is an important factor in setting expectations and forming the final integration team. Even when the scope of the deal seems well bounded, there needs to be allowance for surprises. The Target Canada schedule had no room for that. There is nothing wrong with setting stretch goals. However, they should be rooted in a realistic assessment of probability of success.

In an M&A deal time line, a layered planning approach for complex system integrations may help form more achievable milestones.

Schedule some reality

Scope and schedule are dependent variables. In the Target Canada situation an expansive scope met with an un-realistic implementation schedule, ultimately leading to bankruptcy declaration for Target Canada. Overly aggressive (and un-realistic) schedules can doom a deal from the start.

An M&A deal that is a large investment for the acquirer can place high pressure on the implementation teams to deliver promised financial results.

Prudent M&A deal teams will fully consider all aspects of a acquisition or merger and form schedules to match the complexity they are dealing with. M&A deal teams need to push back on investors and executives where scope and dictated timelines don’t mesh.

 

 

Personal Growth, Small Business Growth, Small Business Purchase, Uncategorized

10 signs a company may be heading for a dead end

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As an investor, you want the companies you buy to be vibrant and heading toward a shared better future.

As an employee, you want to know that the company aspires to something more and has plans to get there.

In either case there are signs you can observe in the corporate environment to help discern whether things are looking up and there is hope or whether things are in a spiral and it may be a dead end.

If the company has these signs it could spell trouble:

  1. Stopped investing in personal development and growth

Learning, adapting and growing is the only antidote to a rapidly changing workplace landscape. It is a crucial way to retain the ability to be competitive in the future. Corporate training, personal development and the encouragement to pursue growth are signs a company is looking to the future and has hope.  Without training and development your skills will slowly become irrelevant. Without a corporate growth culture, the company will stagnate, and be ripe for disruption  from more forward-thinking and engaged competitors.

2. Stopped vision casting, strategic planning and setting goals

Vision and strategy to get there are also forward looking. A clear and well communicated vision of the future is a unifying force in a company, getting everyone on the same page. Strategy and goals allow you to focus the energy of hope in the areas that best achieve the vision. Goals and strategies allow you to say “no” to the other, potentially good activities, that don’t most fully help the company realize the vision. If the company has no vision casting, or strategy discussion, it is a tacit admission that the future looks dim. For no company can continue to exist by simply repeating what they have done in the past. Jim Collins covers this and other corporate killing behaviors in “How the mighty fall“.

3. Stopped analyzing failures and learning from them

Every failure is an opportunity to learn. If your company is not taking the time to ask the why questions surrounding any company ‘failure’ it is neglecting one of the most direct sources of learning and growth available. As the folks over at isixsigma.com state:

“By repeatedly asking the question “Why” (five is a good rule of thumb), you can peel away the layers of symptoms which can lead to the root cause of a problem. “

By understanding root causes, we can make changes to correct, improve and grow. When this process stops, improvement, and growth stop as well.

4. Stopped experimenting

Experimenting, and the the learning that takes place from it, are paths to future products, services and improved customer experiences. Experimentation is the path to discovery. Experimenting is planting seeds for future ideas. Without experimentation you eliminate a key source of corporate learning. Without corporate learning is will be impossible for your company to keep up and competitive in a fast changing market. The market you serve will evolve and change leaving you behind with your antiquated products and services and no one wants to buy.

5. Stopped listening to customers

With today’s search capability, social sharing and ubiquitous smart phone presence consumers can instantly access real time information about your product or service. This can include reviews, comments, social shares and other information. It is easy for a consumer to find out more about your product than you know. The users of products and services are willing to share feedback as well. This feedback is extremely valuable in product development and service adaptation. Customers will reveal what they need and will pay for if you ask the right questions. Companies that stop this process (or ignore it) are refusing to set themselves up for future success with their customer base. Opening the door wide for competitors who will.

6. Stopped working at employee retention

The real asset most companies have, that doesn’t show up on the balance sheet, is the employee base that shows up and do their job in a competent, efficient manner. The consistent commitment to show up and do their job is what moves a company forward. If all the employees stopped doing that, any business would fold like a garage sale lawn chair. Recognition of this fact, and the commensurate application of retention programs for key positions is important to the future continuity and growth of any company. Companies who don’t value the employee base are not valuing their own future prospects.

7. Stopped focusing on workplace culture

As Peter Druker is famously remembered as saying “Culture eats strategy for breakfast”. A great workplace culture is the lubricant of employee commitment and engagement. If the culture is poisonous or corrosive, or just simply ignored, it will impact engagement, commitment, and implicitly, business results. Culture has to be nurtured and maintained. Stopping the care-taking of the culture is akin to not cleaning the fish tank. Pretty soon it gets unbearable (and kills the fish).

8. Stopped showing thanks and appreciation to employees

Sincere thanks and appreciation from company leadership can be more motivating than monetary reward. We all want to be appreciated and recognized for the contributions we make. In companies where this is not the practice it makes the grass look a lot greener elsewhere.

9. Stopped watching for disruption

Disruption can happen at astounding scale and speed. I talked about my take-aways from Big Bang Disruption where whole industries can be disrupted with breath-taking speed. A company must be always on the lookout for up and coming technologies and companies that would potentially pose a threat. This examination must be part of their planning cycle and strategy discussions.  If you stop the vigilant examination of your industry and its periphery you invite the surprise of your industry changing underneath you and your company having no response.

10. Stopped communicating and serving

If your company leadership is not engaging in communication and re-iterating the vision and culture and discussing openly the challenges and opportunities of the business, that is a clear sign that something is amiss. Either it means they have nothing to communicate, or what they have to communicate is bad and they can’t bring themselves to deliver the message. Both are huge red flag indicators.

 

Most of these are easy to spot and all of them are correctable with diligent, committed and wise leadership. Without that, you may be on the way to another dead end.

General IT, Small Business Purchase, Teams

Why You Need an IT Professional on Your M&A Deal Team

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This article first published at the Axial Forum here: Why you need an IT professional on your M&A deal team and is reposted here with permission.

Traditional M&A deal teams run the risk of missing substantive issues that could impact deal structure, terms, and integration success.

Where does this risk come from?

Often the answer is simple: a lack of informational technology (IT) visibility.

Most M&A deal teams comprise accountants, lawyers, M&A professionals, and executives. These are the small teams that engage and form the deal framework with a target firm.

This small team approach can work well and move quickly. But business today is increasingly IT dependent, and these teams may overlook crucial items that could make or break a deal.

How can M&A deal teams mitigate this risk? Involve IT professionals as part of the deal team to help assess a broad overview of the IT landscape of the target firm and identify any substantive issues that may exist early in the deal making process.

This may seem crazy to some. Traditionally, IT is viewed a functional unit of a business — far down the food chain when it comes to M&A deal making. Information technology is not considered at the beginning of the process unless the acquisition is IT-related.

However, here are six reasons that an IT representative should be involved in your next deal team.

1. Pervasiveness

Even small market firms have a significant IT footprint these days. Every department in a typical business has dedicated information technology systems to handle their day to day business functions. There is marketing automation, accounting, resource planning, point of sale systems, human resource systems, production management systems, customer relationship management software, database management systems and big data analytics software, to name just a few examples.

These are the simple cases. Entire departments can be completely dependent on IT systems to fulfill their duty to both internal and external customers. We are almost numb to the pervasiveness of IT. Like electricity, as long as it works, we don’t take much notice.

This out-of-sight out-of-mind attitude can blind an acquirer to potential deal trouble spots. Since IT impacts each business area, it’s important to identify major obstacles and issues early in the deal process.

2. Complexity 

As the pervasiveness of IT systems increases, so does their complexity. Servers, databases, networks, cloud storage, security firewalls, authentication and security systems, third party APIs, and open source software stacks are the hidden components of visible business technologies. It is here, in the maze of hidden components, that potential problems lurk during deal formation.

As a business scales, the number and interconnectedness of these systems increases. It is easy to conceptualize a corporate web server. However, that simple concept can have a complex implementation. For example, it could be that the corporate web server is really several cloud virtual machines behind a load balancer using shared common storage and front end proxy caches for static element distribution and a content delivery network for serving corporate media. (And this is just a small piece of the potential IT complexity in a small to mid-size corporate acquisition.)

Getting a bird’s eye view of the complexity of the IT situation can help deal makers better understand the impact on price, terms, and deal structure as well as improve integration planning.

3. Business Impact 

If a target firm is desirable to an acquirer from a financial or operational perspective, chances are its IT systems will have a direct impact on the business. Effective IT systems can bring significant competitive advantage to a company through automation, proprietary function, scale, and features. The acquirer needs to make sure that they can realize and potential improve upon these advantages after the acquisition. Having a high-level view of the business impacts of the existing IT systems can give the deal team unique insight into ways to further leverage those capabilities post transaction, thus improving potential ROI of the acquisition.

4. Cost

According to Bain Capital’s Will Poindexter and Vishy Padmanabhan, the single biggest impact on general and administrative costs for many companies is IT. Deal teams should consider early on the condition and strategy necessary for the target business’s IT functions. The current condition of IT will have a big impact on future cost trajectory. Poindexter and Padmanabhan use three archetypes — “Neglected,” “Indebted,” or “Gold Plated” — to describe, at a broad level, the conditions they have found in their engagements.

Each archetype will have its own impact on future costs and investments needed post transaction. Much like a high level financial assessment is done to justify pursuing a deal, a high level IT assessment should be done up front as part of the early engagements. Hidden costs, true condition and implicit assumptions regarding the financial needs of the target firm’s IT structure should be revealed and known to the deal team.

5. Security Liability  

Not a day goes by that there is not some news story about a hacked company website or stolen corporate database of customer information. The impact of a data breach can be expensive at least and debilitating at worst. According to the IBM’s 2015 Cost of Data Breach Study, the average consolidated total cost of a data breach is $3.8 million.

Because of this potential liability, an acquiring firm absolutely needs to fully evaluate the security capabilities and practices of a target business during due diligence. However, certain key elements of a business’s security architecture, policies, and practices should be discussed and reviewed during early deal discussion. Having this information early will give the deal team an indication of how the firm approaches security. Knowing this will facilitate a more accurate assessment of potential risk and immediate mitigating actions needed post-transaction.

6. Expectation Management

Integrating IT systems can be the largest part of a merger or acquisition. Differing systems, tools, protocols, and implementation architectures or tools can complicate integrations significantly, impacting timelines and ROI. If some of the thornier issues of a potential IT integration are known at a broad level during deal formation, it’s easier to create more realistic timelines for closing and merging. This knowledge can also help the deal team more appropriately staff the integration teams needed to complete the merger or acquisition.

Summary

An engagement with IT during the deal phase can help identify red flag areas that will need extra due diligence or that can impact deal structure and negotiations. Knowledge of the IT situation by the acquiring firm can also provide leverage points during negotiations and enable the acquirer to factor in early impacts from IT risks, costs, or additional investments that may be needed. Ultimately, knowing, considering, and planning to mitigate IT related factors and issues early will contribute to a more successful M&A outcome.

General IT, Security, Small Business Purchase

5 ways BYOD could impact a small business purchase

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BYOD, or “Bring Your Own Device” is a phenomenon that is currently the rage in many companies. But it could completely derail a business purchase.

BYOD is where an employee uses their own mobile phone, tablet or laptop to access company email, data, networks or applications. It it perceived to allow the employees to be more productive and responsive by accessing job related information and applications on their own device, which they have with the all the time. Companies perceive BYOD to be a way to spend less on hardware for employees.  Everybody wins? Right?

BYOD can be a necessity for small businesses that need to deploy scarce capital for product development. They simply can’t afford spending those resources on phones, and other devices even though they are needed to run the business. BYOD can be a positive for larger companies in terms of impact to budget, improved customer response time and better data for real-time decisions.

What about BYOD when it comes to a business purchase?

When it comes time to purchase  a business, what should an acquirer be looking for reading BYOD that could create problems in the deal?

Here are 5 areas that an acquiring company should consider when it comes to BYOD concerns.

1. Access to company systems

BYOD means that employees are able to login to corporate systems easily. Systems such the payroll or accounting system, maybe your sales or customer applications like salesforce. This includes access to corporate websites for monitoring and publishing content or social media posts. Many employees setup their devices to remember login id’s and passwords so that they don’t have to login to a service overtime they check it. This means that if there phone is stolen and unlocked, the thieves could potentially access those corporate accounts in the same way the employee does.

2. Confidential data

BYOD offers access to corporate systems. This means that for some applications you can download data that may be confidential to the company. Email attachments such as sales reports or contracts, files that are accessed from corporate data servers and documents and spreadsheets can all be stored locally on employee devices. Companies that have intellectual property records and documents would need to pay special attention to this.

3. Customer records

BYOD brings a big advantage to employees for dealing with clients and prospects. By having access to up-to-date, real time customer data and records the employee is able to have more relevant conversations with the client or prospect. This access can help close deals and increase revenue. However, if the device were lost or stolen this same customer data could be available to perpetrators. Corporate data breaches are now commonplace and very expensive.  Acceding to the 2015 IBM Cost of Data Breach Study the average consolidated total cost of a data breach is $3.8 million.

4. Departing employees

Acquiring a business sometimes means existing employees are re-assigned or let go, and some may choose not to stay with the new owners. Acquirers needs to carefully analyze the BYOD impacts of a departing employee. Make sure their access is removed and any locally stored data, or copies of data are deleted. Otherwise they could be walking out the door with the keys to the kingdom, or at least part of it. This is a particularly crucial step for departing IT system administrators. They usually have capability in their access to have full control over systems, data or servers. It is imperative that these aspects be clearly walked through for any departing IT or software development employees.

5. BYOD policy mismatch

Prudent companies use BYOD where it makes sense and helps the company objectives. Part of this prudence is spelled out in the BYOD policy the company should have. These policies should try to balance  employee access and convenience with liability and privacy concerns. The acquiring company needs to investigate the policies in place and determine if they are compatible with their own current practice. If not changes will need to be made, communicated, trained and enforced as part of the transition.

Conclusions

These are some of the basic impacts. Certain businesses may have additional concerns when it comes to HIPPA, manufacturing controls and other specialty applications. It is important to consider these aspects in the deal making phase and investigate them thoroughly during due diligence so that deal risks and impacts are known. An acquirer may need to enlist the services of an IT professional to fully investigate the risks and sues. Knowing before the deal is signed helps make the best decision possible.

General IT, Small Business Purchase, Technical Debt

9 key areas of technical due diligence for a small business purchase

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If you are considering the purchase of a small business, a key to evaluating the business, and its potential risk, is to understand the condition of its IT related systems and equipment.

As small businesses use more IT software, equipment and services it is more crucial than ever to thoroughly investigate the IT environment to help make a prudent decision and to help ensure a successful outcome.

The IT environment for a small business can be a competitive advantage or a complete disaster. The buyer needs to do appropriate discovery and due diligence to understand just what type of IT setup they are getting with a potential purchase.

Here are 9 areas of a small business IT setup that should be well understood as part of valuation and due diligence.

1. IT Vendors and 3rd Party suppliers

You need to know what vendors are providing what services in the IT arena. This could include things like cloud services such as salesforce.com, Hubspot, Mailchimp, Atlassian, Office360 or even Google apps or similar. Some software providers have yearly license fees that would also be included in this list. A well documented list of service providers, what service or package they provide, the department using the service  and the current rate/package and term of agreement will help you see what things are pending and what your expected spend will be each year.

2. Employee Computer Environment Inventory

Most employees of a business have some type of computer for their work. A good due diligence practice is to get an inventory of what types computers are used, what operating systems are used (like MAC or Windows) and what other programs are installed in this environment. Are the computers leased our purchased? When does the lease expire? How old are the employee office computers? Will they have to be replaced soon? Are they reliable and have been maintained? Are they sized appropriate to the work being done? Are basic safeguards such as virus scanning and operating system updates in place? These are all questions that need to be answered to get a better idea regarding what you may have to invest  (or discount on sale price).

3. Internal Computer Servers and network setup

What internal computer servers does the company use, if any? Who maintains them? How old are they and what applications and operating systems do they use? Where are they located and what type of environment are they in? Does the company run windows servers or MACs? Are there other servers running internal software like accounting programs, databases, legacy applications or other types of software?

You will need to have a network diagram and understand how the office computers network together. Are there network switches or routers used? Are there multiple locations that share network capability? What about internet firewalls and wireless access? What are the security procedures regarding access to these machines and resources? All of these are required discussion points in order to make an informed purchase decision.

4. Office Equipment

Things like printers, copiers/scanners and phone systems, though seemingly old school, are still used in most offices. Your due diligence needs to investigate these items as well. Many times copiers/printers are leased from a third party and lease transfer or termination may need to be arranged depending on what you do with them after the purchase. Additionally many copiers also have document scanning capability which could be integrated with the server computers. This dependency would need to be understood and planned for if change is warranted.  Similarly regarding phones. Is the a local PBX or is the system hosted? What type of plan does the phone provider agreement specify? Is the phone system  integrated with a Customer Relationship Management systems to track calls? What about off-premises call answer and follow-me forwarding?  If the acquirer wants to terminate these and roll the use to their existing systems there may be early termination fees that need to be accounted for.

5. Employee BYOD Policies

BYOD is an acronym that stands for Bring Your Own Device. It is a practice where employees can use their personal electronic devices like mobile phones or tablets to access company resources like wireless networks, email, shared databases and other company services and software applications. You will need to understand current company practice regarding BYOD and what risks this brings to the transaction. A liberal BYOD policy could allow employees to have copies of databases and other proprietary information on their devices. The extent of this, and potential impact to the acquirers polices needs to be clearly understood.

6. System Administration Practices

Every IT system has a special administrative account and password. And usually each cloud software service you subscribe to has special account owners and passwords. You need to understand who manages these, how they are secured and how they are changed and monitored. In transition planning, this account information would need to be documented, validated and all transferred to the new new owner. Password updates would then need to be made in accordance with new guidelines. Also, you need to understand how company data is backed up. Where is it stored? Is it off-site? How are restore requests handled? How and who sets up new user accounts? There are many areas of investigation that need to be reviewed in this area to insure a smooth transition.

7. Email and Web Site

In some cases small businesses host their email and web services together. Companies such as 1&1, GoDaddy and others provide packages bundling these services together. You will need to investigate where email (and spam filtering and virus scanning) are done as well as web hosting. Other companies use email hosting providers like outlook.com or google gmail. The setup and documentation of where these critical services are hosted, how they are maintained and who handles the work is critical. Email and website are key links in the chain of customer interaction and must be thoroughly reviewed and the migration to the acquirer accounted for.

8. Point of Sale, Payment Processing and eCommerce

If the business is retail or has online shopping capability  you will also need to understand what systems are in place for these capabilities. Are they on-premise, hosted or leased? What systems and communications capabilities are needed? What providers are used for payment processing and how are they integrated into the customer sales cycle? Does the system use tables driven sales tax, or an online tax nexus service like Avalara? Are credit card numbers or other personally identifiable information stored anywhere and if so what are the security procedures and practices regarding that data? How are the services configured to operate, including API keys, passwords and other key operational parameters? These are absolutely crucial to the new owner to understand and have accurately and thoroughly documented.

9. Custom or Proprietary Software

If the business uses custom programming or has proprietary software applications you need to know more about it. What does it do? Who maintains it, where it is located, how is it managed and updated? What languages, tools or environments are required to use it? Are there large updates planned or needed? Are there security risks? These are just a few of a number of questions that need to be answered regarding customer software. If the business has employees that develop and maintain the software then additional questions regarding the development environment, source code control, testing and release management need to be investigated and understood as well. The answers to these questions will help you understand pending needed investment, risk and potential additional opportunities for synergy and integration gains.

 

These are some of the standard areas of technical due diligence when investigating a potential small business purchase. An appropriate technical due diligence checklist and process can reveal technical debt which will impact the decision making and negotiation process.

Depending on the type of business there may be many other areas to consider. High tech businesses, manufacturing and other types of businesses requiring specialty equipment or software applications will also need additional due diligence in other areas besides those mentioned. Further, mid market businesses due to their size and additional complexity will also require much more effort to fully investigate and understand all aspect of the IT related impact to the transaction.

If you are unsure of these areas it is best to enlist the services of an IT professional to help with a technical assessment. In this way you can get a 3rd party opinion on these areas.

Improving your knowledge in this key area can give you leverage in price and terms negotiation as well as making you better informed of areas that may need to be addressed post sale. And the knowledge can save you lots of headaches later after the purchase.

Small Business Purchase

The coming small business glut

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If you are someone who is a purchaser of small businesses or one who may be so in the future then you need to read this.

According to a Pew Research Center article:

On January 1, 2011, the oldest Baby Boomers will turn 65. Every day for the next 19 years, about 10,000 more will cross that threshold.

That tidal shift will lead to, as INC Magazine stated:

An estimated 65 percent to 75 percent of the small companies in the U.S. — some 10 million — will likely hang up a “for sale” sign over the next five to 10 years. Why? Retiring baby boomers.

For those who are future buyers of small business this will lead to more opportunities, deals and inevitably price pressure on small business prices. It will also present more opportunities for those employees to transition to their own business.

Private equity is already gearing up for this sea change as discussed by Carl Doerksen and Billy Fink among many.

If you are a person that eventually seeks to own a small business or add more to your portfolio, planning now will put you in a position to profit from this historic demographic change.