M&A Due Diligence & Transaction Support

Linking Due Diligence to Your 100-Day Plan

Any organization that has been through an acquisition knows the importance of a sound and thorough due diligence process. Yet while this process is often characterized by an avalanche of day-to-day details and data requests, it’s also vital to prepare for the days and weeks immediately following the deal. So how, exactly, can you hit the ground running once the deal closes? The answer is having a 100-day plan in place – and by linking this plan to the operational and financial due diligence process, you can set your new entity up for success.

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Why Is Your 100-Day Plan So Important?

During an acquisition, the thought of formulating a 100-day plan may feel like just one more thing to tackle in a process that’s already overwhelming. (For additional tips, also read: Buy Side M&A On the Horizon? 5 Strategies for a Smoother Process.) But your plan will provide your company with a clear, strategic view of how to move forward with many key decisions in the immediate future, helping to reduce confusion and conflict among the newly combined management. And in reality, the time it takes to create your 100-day plan may not be as daunting as you think – throughout the due diligence process, you’re already dedicating your time, resources and attention to many of the same factors that will shape your 100-day plan, so it’s simply a matter of formalizing them into an overall plan.

Your 3-Year Quarterly Proforma

Before anything, your company must prepare a 3-year proforma income statement and cash flow by quarter. This evaluation is at the heart of many key decisions, giving management a better idea of what to focus on in the short-, mid- and long-term future for the combined entity. It allows decision-makers to set assumptions about the synergies between the two companies in terms of existing cash flow and income, and drives many elements that will shape your 100-day plan. Here’s a look at some critical considerations that you’ll want to make:

  • Determine Financing: From your proforma income statement and 3-year cash flow, you will gain insight on your organization’s cash position. Does the new entity have enough cash from the operation of the business – or will it require bank financing or equity investors? By planning early, combined management teams will have time to work with the appropriate funding sources and review various funding options.
  • Make Capital Investments: Depending upon your cash flow, you’ll need to evaluate whether or not the entity will require new capital investments. For example, do you need a new building? Will you need to purchase new equipment? Or hire more employees? And if so, what is your timeframe? Formulating these into your 100-day plan will make for a smoother transition of capital improvements.
  • Prepare Documentation. In your plan, it’s a good idea to document and provide rationale for a variety of important decisions. For example, if the entity has a negative cash flow, what are your plans to turn that into a positive cash flow? Will you make adjustments to employees, combine plans, or find other types of savings? Documentation may be requested from the Board of Directors and major shareholders, so it’s best to have it on hand.
  • Manage Duplication. Your 100-day plan should address duplicate functions and headcount, and map out a timeline for handling those duplications. This is especially important in the case of a negative cash flow, as adjustments may need to be made quickly and with the least amount of impact to business. Having a plan in place can, for example, help management establish a positive and supportive process without damaging overall morale and subjecting the entity to possible sabotage and litigation by disgruntled workers. 
  • Make Calculated Decisions. Formalizing decisions in your 100-day plan is a good way to hold management accountable for making those decisions in a thoughtful, non-arbitrary manner. For instance, let’s assume you have duplicate resources and are considering lay-offs for a number of employees. Yet after careful review, you determine that your cash flow is positive, and retaining those employees actually poses the least amount of disruption to business, making that the better choice. This is just one example of how your plan can help inform more thoughtful, strategic decisions from management.
  • Streamline the Financing Process. If it’s determined that additional financing is required (whether through a bank or equity investors), your sources will be looking for documentation – and in this case, the proforma will assure them that management is working on the correct targets in a deliberate manner. Again, it’s best to prepare this as part of the due diligence process, so you’ll be ready to provide it when asked. Failure to do so can cause delays in funding.
  • Shape Your Communication Plan. Have your key customers been notified of the acquisition, and do they have a comfortable understanding as to the plans of the new entity? Your 100-day plan can help guide your communication strategy (including plans for things like customer meetings with the new management) and provide proper assurances to the customers that quality, delivery and price will only get better over time because of the financial strength of the new entity.
  • Identify Opportunities in the Supply Chain. Creating your 100-day plan will help you identify and capitalize on opportunities that exist within the supply chain. Let’s take the example of a newly acquired manufacturing company. You would want to assess the following: which company was getting better pricing from their purchasing sources? How were prices affected by purchase volume? What are some other factors that can be used to negotiate the optimal purchase price? This type of evaluation is directly connected to your income statement and cash flow assumptions, and your 100-day plan will help lay out the ways to immediately implement key changes into your process.

All in all, the days and weeks that follow an acquisition deal can be full of questions, confusion and conflict – and the last thing a newly combined entity needs is a lack of direction and guidance. Preparing your 100-day plan using many of the considerations that arise during the due diligence process is a smart way to set yourself up for success. And keep in mind, for additional guidance, 8020 Consulting’s in-house experts can help guide you through the M&A process from start to finish.

About Cathy

Cathy is a CPA with over 25 years of diverse finance, accounting and operational experience, including positions as CFO and VP-Controller, across a variety of industries including entertainment, automotive and manufacturing.  She has had over 18 years of consulting experience in a variety of roles and areas from VP-Controller to Project Manager with clients such as Toyota, MGM Entertainment, Spelling Entertainment, HBO and Paramount Pictures.  Her areas of expertise include entertainment and participation accounting, project management, strategic planning, forecasting and budgeting, business and film library valuations, mergers and acquisitions, due diligence, cash management, cost accounting and system implementation.  Cathy holds a Bachelor of Science in Business Administration from the University of Southern California and she began her career with Ernst and Young.

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