Based in Sydney, Australia, Foundry is a blog by Rebecca Thao. Her posts explore modern architecture through photos and quotes by influential architects, engineers, and artists.

A Proper Mandate

A Proper Mandate. No – that’s not dinner and a movie with a male companion….. It is an instruction from a client to execute an assignment. Sounds simple enough. However, the challenges are in the detail.

In our work as intermediaries, particularly in the area of SME business sales, we are frequently approached by clients asking us to assist with the sale of their business. Initially, primarily considering the fees they will be asked to pay, and having had quotes from other companies operating in this space, they just want a quote in order to get going.

Our response can at times be confusing and unsatisfactory. Conversely, it can be a breath of fresh air.

You see, our response is regularly…. Why? And that ‘why’ is actually many ‘why’s’, a number of what’s, some how’s & when’s  -  why are you thinking of selling? What are the alternatives? How will you know whether that is the best outcome? What are you going to do once the sale goes through? When did you start thinking about this? How many more questions do you want me to ask you in order to convince you that we should press the pause button and consider what the best outcome is for you (and those around you), the current owner of a business that you have put all your energy into for the last years?

Which brings me back to the mandate. A standard client engagement will authorise the intermediary to market a business for sale. But has the intermediary, who is the expert in the area, taken the time to consider whether a vanilla business sale is the optimal outcome for the client?

A mandate should be structured so that the intermediary brings the benefit of the knowledge and experience to the process and works with their new client on determining what is best for that client. There are a large range of factors that influence this, and we should not expect our clients to have thought all those through. They have been devoting themselves to running their business, and have not trained in this area.

Straight trade sale is only one option. The benefit of this process is that, if the sale option is the optimal one, then the parties are moving forward with confidence, having defined what success looks like.

Moreover, a mandate should include in its terms a recognition of the fact that this is a live process. Often the circumstances that drive a business owner to seek the help of an intermediary are somewhat reactive. We are all human and our thoughts can change. In fact, the process itself will create forks in the road.

I find in my work structuring valuation and advisory mandates that a great deal of time is taken in agreeing the terms of engagement. This is the same in all professional engagement letters. So, will a boilerplate agency agreement locking you in to a standard appraise-list-advertise-sell process really do it justice? The answer is that it can, but it should be used as a product of an active process of road mapping, considering alternatives and defining desired outcomes.

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