Online Money Manager

A warranty is an undertaking from a vendor to a purchaser that statements made in the sales contract are correct. (These are usually subject to a ‘disclosure undertaking’ – see below. An example of a warranty is an undertaking that all litigation with the vendor company has been settled. If these undertakings turn out to be incorrect within a specified time, a penalty will be imposed on the vendor. This penalty is usually a financial one. The total penalties payable can be limited for each individual infringement and/or to a total amount.

A ‘disclosure undertaking’ is a document that clarifies a general warranty statement. For example, it could state: The litigation with Smith and Son, who are claiming a refund on damaged goods of £15000, has yet to be settled.’

An indemnity is usually a specific recompense matching a financial loss. For example, if an amount stated to be due to the vendor business from a debtor (say, £50000) is not paid within 24 months of completion of the sale, then the vendor will pay this amount to the purchaser.

Both warranties and indemnities are common in trade sale agreements.

With a sale to a pic it is not unusual to be offered some (or all) of the purchase consideration in shares of the purchasing company. Accepting the shares instead of insisting on a cash payment could mean you receive a higher notional purchase price based on the value of the shares on the day the agreement is reached. But, what will the shares be worth when you come to sell them? Of course you hope that they will be worth more, and they might well be, but they could be worth less and, perhaps, even less than the amount you could have received if you had insisted on cash. Also, what sort of return in the form of dividends will you be likely to receive while your money is tied up in the shares?

To help you reach a decision on the risk involved in accepting shares instead of cash you can, if the company is publicly listed, undertake research to discover such things as the company’s dividend policy, the volatility of the share price and the liquidity of the shares. Such information is usually not available with private companies, so if you have been offered shares in one as part or full payment for your business you will almost certainly be taking a greater risk.

Generally speaking, shares (especially minority parcels) in a private company are difficult to sell and the ability of minority shareholders to influence such things as dividend policy is limited. Also, the question of what rights attach to the shares being issued to you and how these can be varied will be more transparent in a pic than in a private company.
You need also to be aware that where you are receiving shares in a public company as consideration for some or all of the sale price, there may be a condition in the sales contract which precludes you from selling these shares for some considerable time, possibly up to two years.

Questioning is a useful starting point for creative problem solving. Challenging the way that things are can lead to alternatives being generated. Although questioning alone may not provide breakthrough thinking, it is often an essential first step in breaking traditional thinking. In particular, it can help to question established logic, asking “Why?” as well as “Why not?”. Questioning the limits of existing processes, systems or technology can also stimulate creativity.

Identifying false assumptions is another valuable step. Accepting that good ideas come from anywhere. Ideas are no respecters of status or salary. It may be true that in certain industries senior people have the best ideas, and this is probably a reflection of their experience or confidence. However, excellent ideas can be found in unexpected places: junior members of staff, competitors, other industries or historical legend.

It is often said that in many organisations, too much attention is paid to norms, rules, procedures and precedents and not enough to creative thinking. However, many of the problems that organisations face today cannot be solved without a creative approach. Some of the most popular and effective approaches are described below.

Vertical and lateral thinking. Creativity can be divided into left-brain activities, those that are logical and analytical, and right-brain activities, those that are creative and integrative. A systematic approach to creativity is provided by Edward de Bono, who distinguished between vertical thinking, bounded by logic and linear thinking, and lateral thinking, which cuts across normal boundaries and processes. He claims that where traditional techniques are inadequate for solving problems, lateral thinking will generate new ideas and approaches that provide the answer. Lateral thinking combines ideas and concepts that have not previously been brought together. It removes assumptions, typically by asking “What if?” questions.

Sometimes all that is needed is to determine what is wrong and why it is wrong, and then to fix it. This approach is at the heart of Kepner-Tregoe (kt) analysis and its emphasis on solid, rational analysis makes it suited to hard rather than soft management issues. For example, it is used to explain deviations from the norm, quality or process problems (often in manufacturing), and how to repair machines or systems and to identify potential problems.

kt analysis is simple, methodical and powerful. The first stage is to define the problem in detail by asking the following questions:

• What is the problem or deviation?
• Where does it occur?
• When does it (or did it) occur?
• How does it occur? Specifically, how often does it happen, and how old is the process when it first occurs?
• How big is the problem (how much is affected in real terms or as a proportion of the whole)?

The answers to these questions should allow you to define what the problem is, as well as what it is not. The next stage is to examine the differences between what should happen and what does happen, preparing a list of possible reasons for each difference and for the problem as a whole.

Frequently recurring problems may be several different problems, all linked and with many causes. In such circumstances, Pareto analysis can be useful in organising the data so that the most significant factors are clearly illustrated. This is based upon the 80–20 Pareto principle: that 80% of problems are caused by 20% of possible factors. To tackle a problem, therefore, concentrate on the troublemaking 20%. There are four key steps when initiating a Pareto analysis:

Identify the overarching problem.

Determine the factors causing it and how often they are to blame for the problem’s occurrence.

List the biggest factors contributing to the problem. Pareto analysis is most useful when few factors are involved.

Develop a solution targeting each factor individually.

This approach has the potential to eliminate the biggest causes of a problem, which often prevents it recurring or, at the very least, mitigates its effects. But it is less useful when a large number of factors are more or less equally responsible, as it is difficult and time consuming to analyse each one and pointless to prioritise the order in which they should be tackled. Pareto analysis works best when only damage control is possible.

For example, all organisations get customer complaints, but the biggest reasons for customer dissatisfaction can be attended to, thus reducing the incidence of complaints. However, the more complicated the problem, the less likely it is that Pareto analysis will help to find a solution. For complex problems, creative problem solving is required.

Cause and effect analysis. When treating a patient, a doctor observes the symptoms to decide what the problem is. Similarly, in cause and effect analysis, one first determines the effects of the problem in order to work out what the actual problem is and deal with it. To do this, it helps to take the following steps.

Label the problem. Express its effects in detail so that others can also identify what it is. Labels should endeavour to connect effects to possible causes. For example, if the effect is a 10% increase in late deliveries of goods in the last month, then connect this to all the causes of this problem, such as people, poor transport, inefficient order systems, limited product availability, or whatever.

Identify the root causes of the problem. The most common are likely to be people, materials and equipment. For example, if late product delivery is because of poor communication, then communications systems or bureaucracy might be the root cause.

A flow diagram of work processes can help to illustrate the relationship between problems, their effects and their causes.

Collect data on the causes of the problem. Asking the staff involved for their opinions should help pin down the cause or causes, which can then be dealt with.

These steps are common to all forms of problem solving, but there are many ways to complete them. Some problems may require ingenious solutions that can only be arrived at by the careful adoption of such different techniques as ratio analysis and brainstorming. It is therefore necessary to differentiate between two types of problem: programmed and non-programmed.

Programmed problems are usually those that occur as a routine part of a manager’s job. Even when they are complex, requiring careful deliberation, the solutions are often found by following organisational precedent and procedures. Examples include machine breakdown, salary and staff dilemmas, and budget issues. Linear programming, queuing theory and decision-tree techniques are methods that can be used to deal with such problems.

Non-programmed problems are those for which there is no single system or procedure for determining the right course of action. They may involve anything from new-product development to the shape of a marketing campaign, and they are usually of fundamental importance to the success of particular product lines, even an organisation itself. The most common but not always the most effective technique for solving non-programmed problems is creative roblem solving, including brainstorming. Other useful techniques include cause and effect analysis and Pareto analysis.