Corporate finance financing is just up there with your basic root canal. It may be necessary but its really not fun.
In fact, the overall process of acquiring an ongoing business can be a sucking sucking business, very expensive and ultimately infertile.
Why is the process so frustrating?
The answer is in many cases the advisors involved.
Thats right, the people who are paid to complete the deal are the same as killing it.
Let me explain.
All offers have two sides, a buyer and a seller. Both sides must rely on their third-party advisors to advise on such things as legal, valuation, taxation, finance, etc.
Unfortunately, business finance financing issues do not tend to be handled when creating the purchase and sales agreement, which sometimes creates problems for potential lenders.
When buyers and sellers are highly dependent on advisors, there is automatically less chance of business succeeding. Why? Because it can be impossible for both sides to agree or link questions between the advisors without great costs and time delays.
Advisers are ordered by their customers to protect the customers best interests. But in this process of protection it can be very difficult to get both sides to agree on all problems because both groups of advisors come in every problem from the opposite point of view. The result is an agreement between buyers and sellers in principle that can not be closed.
Even when the purchase agreement is completed, there may be terms that are not acceptable to your source or sources of corporate finance.
If the agreement has to be revised for the lender, this may be the beginning at the end, as it may have already taken the powers of heaven and earth to agree and sign the first time. Making changes can be like opening Pandoras box without hoping to ever get it closed again.
If all this sounds gloomy and depressing, it can really be.
The sharp reality is that if you are going to buy or sell a small company, you must self-educate yourself to some extent before you begin.
Here are some points to consider:
Approach the store on a Win-Win basis. Too often in deal-making, one tries to pull one on the other and try to get better than they would otherwise have.
This is a dangerous strategy because it is not what you and the other party agree that in principle, the advisors will weigh in at some point and probably reveal inequality created in the negotiations. Not only does the agreement become complicated, because a new basis for agreement must be established, but there may also be mistrust between the parties, either of which may end the death of the deal.
Be the decision maker. There is nothing wrong with advising advisors when trying to finish a business and arrange corporate finance. Just do not turn all decision-making authority to the advisors. Take all the advice as input and decide for yourself what questions to bend and what problems are holy cows.
Select Deal Makers. Make sure that counselors you chose to work with lawyers, accountants, business consultants are businessmen who do not deal with breakers. A job definition of a business maker is simply someone who has a long history of closing the type of business you are trying to complete. These people have a combination of the right technical ability, relevant experience and ego control required to really increase the value of the money you will need to pay them if the agreement is closed or not.
Prequalify the financing requirements for acquisitions. Ensure that the buyer is able to acquire financing. The buyer usually needs 1/3 to 1/2 purchase price as a payment, depending on the industry and the hard assets that are acquired. Good credit and a solid net worth may also be required by appropriate funding. The seller must be prepared to work on different financing options before he becomes too deep in due diligence. Will a reseller take back required? How long is the seller willing to help with the business after a sale? How much working capital is the seller draining the business?
Consult with a finance consultant. Regardless of whether you are the buyer or seller, it is important to talk the potential deal with a finance consultant before your accountant and lawyer start running their tabs or tabs.
From the sellers point of view, a finance consultant can be invaluable to provide insight into how to get the deal in a financial position. From the buyers point of view, a finance consultant can provide guidelines for the lenders requirements. In both cases, there is no point in going through all the potential aggravation of closing an agreement if it is unlikely to attract the necessary capital for the acquisition of capital.