Business Plan: Define your outlook
A business plan is an essential document that formalizes your company’s financial outlook and defines its strategic objectives. The creation of a business plan is essential, whether you are making an acquisition, raising funds, selling a company to prove its development potential, or planning and executing internal growth projects. AKCEAN can help you model your project’s profitability and create projections that reflect your vision. We’ll help you prepare a convincing business case that will maximize your chances of accessing the financing you’re looking for. What is a business plan? A business plan is an essential document that summarizes the key elements of a business project and its prospects. It’s common to simplistically reduce a business plan to financial projections. In reality, it’s a much more comprehensive document, offering an in-depth understanding of the company and its prospects. It includes a detailed description of the company’s operations, organizational structure, strategic objectives and target market. It also specifies financial requirements and the underlying assumptions that inform financial projections. The main purpose of the business plan is toassess the viability of a project. It plays an essential role in guiding the company’s internal operations, but also in convincing external partners , whether banks, investors or commercial partners, of the interest and soundness of your project. How do I draw up a business plan? there are no hard and fast rules for presenting the contents of a business plan. However, there are a number of steps to follow, and a certain logic should be observed. The project must be described in all its aspects: human, strategic, financial and technical. Reading the business plan should enable stakeholders to appreciate the realism, relevance and viability of the project. The essential elements to include are the context in which the company operates, the objectives set, the key people and their roles, the business strategy and its implementation, the financing plan, detailed financial projections and the expected return on investment. Effective presentation of a business plan requires an organized and coherent structure, as illustrated in the following example: Part 1: The executive summary This section should capture the essence of your project in a few incisive paragraphs including the following points: Nature of the business, company values and history; Organizational structure and shareholders; Clear identification of target market; Presentation of the management team; Company objectives ; Financing requirements; and Expected return on investment. Part 2: The team This section describes the organizational structure and identifies the company’s key people and their specific skills, highlighting : Their professional experience ; Their roles and responsibilities; and How their skills complement each other and contribute to achieving the company’s vision. Part 3: Market research This part provides an in-depth analysis of the market in which the company operates, including: Current and future industry trends; Demographic and psychographic analysis of potential customers; Customer expectations and needs; An analysis of competitors, their offerings and performance; and The company’s strategic positioning in the market. Part 4: Business model This section should detail how the company creates value by presenting the following elements: Description of the company’s core activities and value chain; Presentation of product or service offering and pricing policy; Profile and segmentation of target customers; Description of the customer experience; Sales segmentation; Description of sales strategy; Details of key resources required, including personnel, material and technical resources and financing; Identification of strategic partnerships; and Details of main fixed and variable costs. Part 5: Financial section The financial part of the business plan projects the company’s financial health over the medium term, generally over a five-year period. This section is crucial for determining the financial needs and economic viability of the project. It should include the following elements: Initial Financing Plan: A table detailing the funds required and the sources of financing envisaged. Forecast Income Statement: This provides detailed forecasts of sales and operating costs, giving an idea of future profitability. Operating cash flows: These are projections of cash inflows and outflows from the company’s current activities, enabling an assessment of operational liquidity. Investment cash flows: These are forecasts of financial flows linked to investments in durable assets, such as equipment or real estate. Financing cash flows: Projections of cash flows relating to company financing, including borrowings and transactions with shareholders. Valuation Scenario: An estimate of the future value of the business and the return on investment for the company and its investors. Benefits of the business plan The creation of a business plan offers a multitude of strategic and operational advantages essential to the development of a company: Formalization of corporate strategy: The business plan formalizes strategic thinking by detailing the company’s target market, positioning and marketing strategy. Transformation of vision into concrete objectives: It defines and communicates measurable short-, medium- and long-term objectives. Assessing resource requirements: The business plan identifies the resources needed – whether human, material, technical or financial – to achieve the objectives set. Profitability estimates: The business plan projects the revenues, operating costs, investments and financing required to assess the company’s future profitability. Scenario forecasting: It offers the possibility of adjusting key assumptions to simulate various growth and cost scenarios, aiding decision-making. Convincing partners: A well-developed business plan is an effective tool for convincing investors, buyers, banks and business partners. Performance monitoring: It enables actual company performance to be compared with forecasts, facilitating a strategic review if necessary. Tips & tricks for successful implementation Your business plan must enable the reader to quickly understand what it’s all about and take a stand on your project. It reflects the coherence of your project. To achieve this, it must be neat, concise, clear and structured. Here are some tips and advice on how to optimize your plan: Highlight your team’s skills and experience to reinforce the credibility of your project. Emphasize added value: Clearly explain how your product or service differentiates itself in the marketplace. Quantify and justify your data: Use figures to back up your claims, and justify your assumptions convincingly. Be cautious and realistic : Make sure your
Shareholders’ agreement: define the foundations of your shareholder relations!
The shareholders’ agreement is an essential legal document that provides a framework for relations between shareholders and sets out certain rules governing the operation of the company. Whenever the shareholder structure changes, whether as a result of the arrival of a new shareholder, a reconfiguration of capital, a fund-raising operation or a partial sale of capital in which the initial shareholder remains in the minority, it is essential to draw up a shareholders’ agreement. AKCEAN can help you negotiate the clauses of a shareholders’ agreement, to protect your interests, prevent conflicts and establish sound governance. What is a shareholders’ agreement and why is it important? A shareholders’ agreement is a private law contract between the shareholders of a company. Its role is to establish clarity in shareholder relations and define rules for the smooth running of the company. In particular, it enables shareholders to anticipate and agree in advance on measures to be taken in the face of potential divergences. The exact name of the pact varies according to the legal form of the company: it is called a shareholders’ pact for joint-stock companies (Société Anonyme, Société par actions simplifiée) and a partners’ pact for partnerships (Société à responsabilité limitée, Société civile). Although optional, a shareholders’ agreement is essential to ensure coherent management of the company, and is strongly recommended when there are several shareholders. Distinction between articles of association and shareholders’ agreement It should be noted that the company’s Articles of Association and the Shareholders’ Agreement are two separate documents, with the Agreement supplementing the Articles of Association. Unlike the Articles of Association, the Shareholders’ Agreement is neither mandatory nor public, and enables you to set down rules that you wish to keep confidential. However, it is essential to ensure that the two documents are compatible, to avoid any possible contradictions. What clauses does it include, and why are they essential? A shareholders’ agreement includes a number of clauses categorized according to their purpose, such as those relating to governance, presence, exit and financial rights. The following is a non-exhaustive list of some of these clauses: GOVERNANCE CLAUSES Board of directors Shareholders define the structure and composition of the Board of Directors, including their representativeness, as well as the frequency of meetings. The main role of the Board of Directors is to guide and validate the company’s major strategic decisions. The shareholders’ agreement specifies the responsibilities of the Board of Directors. In particular, its role is to guide and approve the company’s key strategic choices. This includes appointing senior executives, supervising executive management, drawing up remuneration policies, establishing internal governance principles, approving financial statements, validating financing requests, monitoring and managing risks, making investment and M&A decisions, and approving the annual budget. To avoid deadlock, it’s a good idea to opt for a moderately sized board, with an odd number of the main shareholders represented. Voting rights Shareholders may wish to impose an obligation to vote for or against certain resolutions, benefit from enhanced voting rights or a right of veto on certain decisions, or require consultation before each meeting. Mediation In the event of persistent disagreements between shareholders, it may be useful to provide for a simple obligation to consult or mediate, or to envisage more binding solutions. Right to information Shareholders define the content and frequency of the reporting they wish to receive, to ensure optimum transparency and communication ATTENDANCE CLAUSES Exclusivity Directors are forbidden to become involved in other companies, including non-competing ones. The aim is to ensure total commitment to the company and prevent any potential conflicts of interest. Non-competition and non-poaching Directors and shareholders undertake not to compete with the company, either directly or indirectly. This may involve a prohibition on investing in a competing company. This clause, which must be circumscribed in its geographical and temporal scope, may continue to have effect even after the persons concerned have left the company. Non-transferability (or inalienability) Shareholders undertake not to sell their holdings in the company’s capital for a certain period, thus ensuring stability in the capital structure. EXITCLAUSES Pre-emption If a shareholder intends to sell his or her shares, he or she must inform all other shareholders. The shareholders, or some of them, have a priority right to acquire the shares before any outside third party. The price of these shares may be fixed in advance or determined according to certain conditions. Approval Shareholders may control and approve the entry of new shareholders. Any intention to transfer shares to a new entrant must be approved by the shareholders’ meeting. If approval is not granted, the shares may be acquired by the other shareholders or by the company. It is also possible to provide for the appointment of an independent expert to estimate the value of the shares. Good/Bad Leaver The “Bad Leaver” refers to a shareholder who decides to leave the company prematurely, or is excluded as a result of misconduct. Under these circumstances, the shareholder’s shares can be bought back at below market value. This provision is designed to penalize departures deemed detrimental to the company. On the other hand, a “Good Leaver” is a shareholder who separates from the company under conditions that respect the terms of the agreement, whether by achieving pre-established objectives or respecting a commitment period. In this case, the shareholder may benefit from favorable conditions for the sale of his shares. Good/Bad Leaver clauses are generally intended for key individuals with a significant operational role in the company. “Buy or Sell In the event of a major disagreement likely to compromise the company’s future, a shareholder may offer to buy the shares of another shareholder. The shareholder receiving this proposal then has the choice of selling his or her shares at the proposed price or, if he or she refuses, buying the shares at the same price. This mechanism prevents the company from being paralyzed by a conflict between shareholders. Liquidity After a defined period, or following a particular event, a coordinated exit strategy can be planned, involving
Acquisition audit: an essential step when buying a company
When it comes to acquiring a company, the potential buyer is often less well-informed than the seller about the company he is planning to buy. Due diligence is designed to redress this imbalance, by thoroughly analyzing the company’s key elements prior to any transaction. AKCEAN analyzes commercial and financial documents, and coordinates accounting, legal and tax experts to carry out the audits. What is an acquisition audit? An acquisition audit consists of gathering and analyzing essential information about the company you are considering acquiring, enabling you to reconsider your decision. Although there is no legal obligation to do so, due diligence is essential given the stakes and risks involved in acquiring a company. It will provide you with in-depth insight into the company’s strengths and weaknesses . There are several types of audit, each focusing on a specific area of the company concerned. Commonly performed audits cover the following areas: Sales: Evaluates sales performance, customer profile and competitive dynamics. Accounting and finance: Analyzes accounting documentation, ensures compliance of accounting principles with the reality of the financial situation, and identifies potential financial risks. Legal: Reviews legal documents, major contracts and current or potential legal issues. Tax: Examines the tax situation and assesses the risks of future tax audits. Social: Analyzes human resources management, employment contracts, employee status and benefits, and social obligations. Organizational: looks at the internal workings of the company. Technical: Evaluates the technical and IT tools used by the company. Environmental: Checks the company’s compliance with current environmental standards. What are the main challenges? The acquisition audit is of the utmost importance, as it aims to : Highlight the strengths and weaknesses of the target company; Present the future buyer with a realistic vision of the company; Measure the risks and, if necessary, adjust the terms of negotiation; Identify any irregularities; and Anticipate any changes to be implemented post-transaction. Essentially, the aim is to ensure parity of information between the seller, who is generally well informed, and the potential buyer, who is often in search of additional data, before any decision is taken. When should an acquisition audit be carried out? We recommend carrying out the acquisition audit after the letter of intent has been signed. At this stage, the acquirer is already familiar with the target and has negotiated certain key points, and the audit will either validate or challenge the information shared by the seller. It is advisable not to start this audit before the letter of intent has been signed, in order to avoid unnecessary costs should negotiations fail. However, the audit should not be launched too late either: the accounting, legal and tax experts must be given adequate time for an in-depth analysis. After the audit findings, it is also essential to anticipate a period of renegotiation. The audit report The acquisition audit is carried out by professionals (chartered accountants, legal experts, tax specialists, etc.). It is you, the potential buyer, who defines the objectives of this audit. The validity of the audit depends as much on the depth as on the meticulousness of the controls carried out; hence the importance of surrounding yourself with trustworthy professionals. Following the audit, a report is sent directly to you. This document summarizes the essential information, the auditor’s findings, reservations and recommendations. The report’s conclusions may guide your decision as to whether and how to pursue negotiations. You have the opportunity to share certain conclusions with the seller in order to refine the negotiation agreement. The acquisition audit enables you to fine-tune the terms of the transaction on the basis of a detailed review of the company’s key documents. It enables you to adjust your initial offer, whether in terms of price or by requesting specific guarantees to cover identified weaknesses. Last update: October 2023
Letter of intent: content, issues and legal value
Are you about to acquire a company or become a shareholder? Or selling your company? The Letter of Intent (LOI) is a key element in the success of any transactional process. AKCEAN works with you to develop a transparent LOI based on your objectives and interests. Avoid misunderstandings and secure your transaction with a well-drafted LOI. What is a letter of intent, and what are its key issues? The letter of intent is the document by which sellers and buyers formalize their negotiations. Following initial discussions and analysis, the letter of intent details the essential points on which the parties intend to enter into a contract. It is usually drafted on the buyer’s initiative , but sellers are well advised to include all the points they wish to see included in the final contract. Once this stage has been completed, it becomes much more difficult to introduce new elements into the negotiations. The letter of intent clarifies the grey areas that may be present in a business takeover or investment project. Although it is not a legal requirement, it is highly recommended. It is an affirmation of the company’s willingness to contract and negotiate, while defining the scope of discussions and the limits of negotiations. If you are the seller : The letter of intent represents an official intention to buy your company, clarifies the motivation of a potential buyer, and assures you of a genuine interest. The letter of intent enables you to reach agreement on the essential elements of the sale transaction, and to clarify the specific commitments you expect from the buyer. The letter of intent allows you to communicate confidential information about the company with greater peace of mind. If you are the buyer : The letter of intent assures you that the seller is willing to sell his business to you. It is at this point that you can initiate the acquisition audits, which entail significant costs. The letter of intent enables you to reach agreement on the essential elements of the transaction, and to clarify the specific commitments you expect from the seller. The letter of intent will stabilize negotiations by avoiding an auction effect, and may offer you a period of exclusivity. You can then take advantage of this period to carry out acquisition audits, and possibly make a firm and definitive offer. What should a letter of intent contain? The purpose of the letter of intent is to detail the planned transaction as clearly as possible. It specifies the conditions and intentions of each party, so as to validate points of agreement and remove points of disagreement. It is therefore important to include clauses that you will find in the final contractual documentation of the transaction. The content of the letter of intent is not limited solely to the price, which is only one element of the transaction. Other conditions need to be mentioned, such as non-competition clauses, asset and liability warranties, post-transaction support for sellers, and so on. The letter of intent has no formal requirements. Neither its content nor its form are subject to any particular rule, and its content may vary according to the purpose of the negotiations and the commitment of the parties. However, we recommend that you include the following points: Subject of negotiation Presentation of the parties The buyer’s reasons for entering into the transaction Indicative transaction price, detailing the pricing mechanism Terms of payment Financing of the transaction Guarantee of assets and liabilities (GAP), under which the seller undertakes to compensate the buyer in the event of a reduction in assets or a reduction in liabilities after the sale, the causes of which predate the sale. The terms and conditions of the GAP must be anticipated (amount, duration, trigger threshold, possible deductible, activation mechanism, guarantee of the guarantee) Support for sellers Non-competition undertaking Confidentiality of information, offer and transaction Exclusivity period Conditions required to complete the transaction Transaction timetable Legal value Offer validity period In the case of a minority investment, the letter of intent may also contain the following non-exhaustive information: Investment terms (amount, instruments used) Valuation retained Envisaged governance Rights granted to investors Exit strategy What is the value of the letter of intent? The legal value of a letter of intent is essentially determined by its content. Often drawn up as a private document, the letter of intent is in principle a non-binding document with no contractual value in relation to the final contract. It serves as a moral crystallization of an agreement. The parties undertake to enter into negotiations under the conditions they have set out. The letter of intent may trigger exclusive negotiation rights, but is not intended to guarantee that the planned contract will necessarily be concluded. Contractual value – Abusive termination of talks A letter of intent may nevertheless have contractual value, and be perceived as a contract in its own right. In this case, the defaulting party may be held contractually liable. As the parties may evoke real commitments in its content, they may be held liable in particular in the event of a so-called abusive breach of talks, or if it is deemed that one of the parties has not shown good faith in the negotiations. As each letter of intent has its own characteristics and commitments, it is advisable to consult a legal professional who will be able to verify its legal scope and assess whether it is binding or not. This will depend more on its content than on its title! Last update: October 2023
Company valuation methods
“How much is my business worth?” : a question that every company director must have asked himself. Particularly when you’re planning to sell your business or attract investors. As an investor or buyer, you may also ask yourself: “How much is the company I want to buy or invest in worth? AKCEAN guides you through this delicate operation, so that you can benefit from the most accurate valuation possible, applying the methodologies best suited to your needs. Negotiate serenely by estimating the value of your company before the transaction. What is business valuation and when is it necessary? Crucial to many transactions and decisions, valuation represents an estimate of a company’s financial value at a given point in time. This calculation is based on the company’s accounting data, but also takes into account its future prospects. As a manager, you may need to initiate a valuation for a variety of reasons: a sale ; an acquisition or merger the arrival or departure of a partner; a request for financing; succession planning; an initial public offering (…) Valuation enables you to establish a so-called “theoretical” value. That’s why it’s so important when it comes to negotiations. It enables you to understand what the company is worth, so as to guide the negotiation process. The challenge lies in the choice of method to be applied, which depends primarily on the company’s situation and the objective or context of the valuation. This is why there are different valuation methods, more or less adapted to the company’s size, business sector, assets or life cycle. What are the main valuation methods? 1. Comparable method The comparables method, commonly used for established companies, enables you to determine the company’s financial value at a date “t” by comparison with the value of other companies. The comparables method is, as the name suggests, based on a comparison of the company being valued with other similar companies operating in the same industry and with similar growth prospects. The company’s value is determined by applying a multiple to a specific accounting or financial indicator, such as sales or profitability. The method involves determining a series of multiples based on data from companies whose valuations are known and comparable. These multiples are generally known because the comparable companies are listed on the stock exchange or have already been the subject of a transaction, the terms of which have been made public. The comparable method can be summarized in 3 main steps : Selecting your sample of comparable companies: the most similar companies in terms of activity, size and geography must be selected to ensure the relevance of the multiples used. Choice of multiples: companies are frequently valued using the enterprise value (market value of shareholders’ equity, financial debt and debt) in relation to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), an indicator of operating profitability. The Enterprise Value/EBITDA multiple is thus commonly used, but other multiples based on sales, operating income, net income or cash flows may be preferred, depending on the company’s sector of activity and financial situation. Applying multiples to value your company: the multiple observed for comparable companies is applied to your company’s performance (EBITDA, sales, etc.) to determine its valuation. Advantages and limitations : This valuation method does not require a business plan, and is relatively simple to understand and apply. In some cases, however, it is difficult to select companies that are sufficiently similar to the one being valued, and price information on transactions is limited. 2. Discounted Cash-Flow (DCF) – Forward-looking method The Discounted Cash-Flow (DCF) method consists in determining the financial value of a company at a date “t” through the cash flows it will generate in the future, discounted to a present value. It can be used as part of a fund-raising or M&A process. Internally, this method can also be used to determine the relevance and interest of a potential investment. In order to add up all future cash flows, discounting is used to reduce them to their real value at the same date. Discounting is necessary because €100 today will not be worth €100 in 1 or 10 years’ time. Similarly, €100 in 1 year’s time will not be worth €100 today. This valuation method requires a solid business plan and an estimate of expected cash flows over the next few years. These are then discounted at the expected rate of return, with each cash flow weighted in decreasing order over time. This method is called “intrinsic”, as it is based on the company’s ability to generate cash flows. It is therefore particularly relevant for companies with specific features that require the modeling of particular growth, profitability and investment forecasts. This is the case, for example, for start-ups or companies considering changes to their business models. The DCF method can be summarized in 4 main steps: Identification of free cash flows (cash flows generated by the company) Evaluation of the discount rate (Weighted Average Cost of Capital, the rate of return expected by all providers of capital) Choice of forecast duration (business plan horizon) Calculation of terminal value (value of the last cash flow of the business plan period, assumed to grow to infinity) Advantages and limitations The DCF method has the advantage of forcing the entrepreneur to project into the future, and requires a robust business plan. However, future cash flows are uncertain, as it is difficult to predict the future, and valuation is highly sensitive to the discount rate used. 3. Net Asset Value – Patrimonial method Net asset value, also known as the patrimonial method, is calculated from a company’s balance sheet. Assets and liabilities are valued at their market value, making it possible to determine the market value of shareholders’ equity. This method is preferred for companies whose value is based essentially on their assets, such as holding and real estate companies. The valuation of each balance sheet item is essential, as book values do not necessarily reflect the true value of an asset or
