Business sale transactions are rarely structured all in cash, especially in the current climate. For a number of reasons including tax, financing, buyer hedging and maximisation of value, deals can be structured in a variety of way and we have focused on some of the more common ones below:
Cash
Deferred payments
Retentions
Performance related payments (PRP)
Earn Outs
Elevator Deals
Shares
Mergers
This document discusses accounts receivable management and credit policies. It defines accounts receivable as sales made on credit. Establishing the right credit policy is important because it affects sales, working capital requirements, and bad debt losses. The document outlines key considerations for determining a credit policy, including credit terms, standards, discounts and collection procedures. It also discusses the trade-offs involved, such as higher sales versus increased costs of financing, collection and potential bad debts. Effective management of accounts receivable and prudent credit policies can help optimize current assets and cash flow.
The document discusses three methods for owners to transfer their company to key employees:
1. A long-term installment sale where the employees promise to pay the agreed value to the owner over 7-10 years through installment payments.
2. A leveraged management buyout where the transaction draws on management resources, outside equity, and significant debt financing. This structure can reward key employees and position the company for growth while minimizing the owner's ongoing risk.
3. A modified buyout that uses both an installment sale and outside financing to affect the buyout, reducing the owner's risk compared to a standard installment sale. Outside financing is obtained through private equity firms who partner with management to create shareholder value.
This document discusses key concepts related to managing cash and receivables. It covers cash needs and considerations, credit policies, evaluating accounts receivable levels, and methods for financing receivables. It also addresses estimating uncollectible accounts, writing off accounts, and making and paying promissory notes. Specific topics include cash requirements, receivable turnover, days' sales uncollected, allowance method for estimating bad debts, percentage of net sales method, accounts receivable aging method, and discounting and factoring receivables.
The document discusses accounts receivable and notes receivable. It defines receivables as amounts due from individuals and companies. It identifies the main types of receivables as accounts receivable, notes receivable, and other receivables. It then covers accounting issues related to recognition, valuation, and estimation of uncollectibles for accounts receivable. Finally, it discusses the processes of assigning or factoring accounts receivable, including examples of journal entries for assigning receivables as collateral for a loan.
This document provides an overview of how to value a business for purchase. It discusses that valuation is complex and only one part of the larger process of buying and selling a business. Common valuation methods are discussed, including price/earnings ratio, sales or earnings multiples, return on investment, discounted cashflow, and net asset value. Additional factors to consider include tax implications, management team, market trends, client base, contracts, and supply chain. Due diligence is important to understand potential risks and opportunities. Psychology and managing expectations are also key aspects of negotiating a deal. The overall process can take many months to complete.
This document discusses the management of receivables. It begins by defining receivables as debts owed by customers who have purchased goods on credit but not yet paid. It then discusses the objectives and costs associated with receivables, as well as the benefits. Factors affecting the size of receivables and the importance of having a credit policy to manage receivables are also covered. The document also briefly discusses the management of payables.
Receivable management and Factoring (By BU AIS 2nd Batch)Jessic Sharif
This presentation discusses receivables management and factoring. It begins with an introduction of the presentation team and defines receivables as debts or monetary obligations owed to a company by its customers. It then covers understanding and characteristics of receivables, as well as the objectives, importance and scope of receivables management. The presentation also discusses credit policies, credit evaluation, aging schedules, and factoring - including the services provided by factors and how factoring differs from bill discounting. The overall purpose is to provide an overview of key concepts relating to receivables management and factoring.
The document provides information on valuation methods for startups. It discusses questions founders may have about valuation, outlines various valuation methods including cost, income and market-based approaches, and provides examples of how valuations are determined for startups at different stages. Valuation is presented as a multifaceted process that considers both tangible and intangible factors, and is driven by the team, funding needs, deal terms, and negotiation between founders and investors.
This document discusses accounts receivable management and credit policies. It defines accounts receivable as sales made on credit. Establishing the right credit policy is important because it affects sales, working capital requirements, and bad debt losses. The document outlines key considerations for determining a credit policy, including credit terms, standards, discounts and collection procedures. It also discusses the trade-offs involved, such as higher sales versus increased costs of financing, collection and potential bad debts. Effective management of accounts receivable and prudent credit policies can help optimize current assets and cash flow.
The document discusses three methods for owners to transfer their company to key employees:
1. A long-term installment sale where the employees promise to pay the agreed value to the owner over 7-10 years through installment payments.
2. A leveraged management buyout where the transaction draws on management resources, outside equity, and significant debt financing. This structure can reward key employees and position the company for growth while minimizing the owner's ongoing risk.
3. A modified buyout that uses both an installment sale and outside financing to affect the buyout, reducing the owner's risk compared to a standard installment sale. Outside financing is obtained through private equity firms who partner with management to create shareholder value.
This document discusses key concepts related to managing cash and receivables. It covers cash needs and considerations, credit policies, evaluating accounts receivable levels, and methods for financing receivables. It also addresses estimating uncollectible accounts, writing off accounts, and making and paying promissory notes. Specific topics include cash requirements, receivable turnover, days' sales uncollected, allowance method for estimating bad debts, percentage of net sales method, accounts receivable aging method, and discounting and factoring receivables.
The document discusses accounts receivable and notes receivable. It defines receivables as amounts due from individuals and companies. It identifies the main types of receivables as accounts receivable, notes receivable, and other receivables. It then covers accounting issues related to recognition, valuation, and estimation of uncollectibles for accounts receivable. Finally, it discusses the processes of assigning or factoring accounts receivable, including examples of journal entries for assigning receivables as collateral for a loan.
This document provides an overview of how to value a business for purchase. It discusses that valuation is complex and only one part of the larger process of buying and selling a business. Common valuation methods are discussed, including price/earnings ratio, sales or earnings multiples, return on investment, discounted cashflow, and net asset value. Additional factors to consider include tax implications, management team, market trends, client base, contracts, and supply chain. Due diligence is important to understand potential risks and opportunities. Psychology and managing expectations are also key aspects of negotiating a deal. The overall process can take many months to complete.
This document discusses the management of receivables. It begins by defining receivables as debts owed by customers who have purchased goods on credit but not yet paid. It then discusses the objectives and costs associated with receivables, as well as the benefits. Factors affecting the size of receivables and the importance of having a credit policy to manage receivables are also covered. The document also briefly discusses the management of payables.
Receivable management and Factoring (By BU AIS 2nd Batch)Jessic Sharif
This presentation discusses receivables management and factoring. It begins with an introduction of the presentation team and defines receivables as debts or monetary obligations owed to a company by its customers. It then covers understanding and characteristics of receivables, as well as the objectives, importance and scope of receivables management. The presentation also discusses credit policies, credit evaluation, aging schedules, and factoring - including the services provided by factors and how factoring differs from bill discounting. The overall purpose is to provide an overview of key concepts relating to receivables management and factoring.
The document provides information on valuation methods for startups. It discusses questions founders may have about valuation, outlines various valuation methods including cost, income and market-based approaches, and provides examples of how valuations are determined for startups at different stages. Valuation is presented as a multifaceted process that considers both tangible and intangible factors, and is driven by the team, funding needs, deal terms, and negotiation between founders and investors.
Management Of Inventories And Accounts Receivables Units 14 And 15Augustin Bangalore
This document discusses various aspects of inventory and accounts receivable management. It defines key terms like economic ordering quantity (EOQ), reorder level, inventory turnover ratio, ABC analysis, and bill of materials. It provides formulas to calculate EOQ and discusses how to determine optimal inventory levels. Examples are given to illustrate calculation of EOQ, analysis of extending credit terms, and classification of inventories using ABC analysis. The document also briefly explains perpetual inventory systems and various committees that have made recommendations around working capital management in India.
The science and art of Startup ValuationsAnjana Vivek
Insights on Valuation and Negotiations… OR … how Can You can get a better price. ..whether for M&A or VC or strategic investment. Valuation is Subjective and Objective; there is a math to valuation, there are Business models which are captured in financial models and spread sheets. There is scenario analysis and sensitivity analysis. There are premiums and discounts assigned to multiple factors. This objective math is impacted by subjectivity of the person(s) doing the calculation, for example, if you are an unlisted company, is the discount factor 50% or 80% or somewhere in-between? This presentation sets out the methods and process of valuation with a few specific examples on valuations for different cases, including mentoring, acceleration, investment and more.
Firms often need short-term financing to meet growth needs or match short-term assets. Common sources include bank loans, trade credit, and commercial paper. Bank loans include promissory notes and lines of credit, while trade credit involves delayed supplier payments. The cost of financing includes stated interest rates plus various fees, and is often calculated as an effective annual percentage rate (APR). Accounts receivable and inventory can sometimes be used as collateral for short-term loans.
Icai national seminar m&a-deal valuationAnjana Vivek
Some pointers on Deal Valuation which is beyond numbers, including some questions 'to trigger thinking' related to valuation from a buyer/seller perspective
This presentation is designed to:
- clarify common confusion between profit and cash in the bank
- provide practical actions that you can immediately use in your business
- offer an example of a cash flow report that can help a business owner
Factoring is a financial arrangement where a business sells its accounts receivable (invoices) to a third party (called a factor) at a discount. There are two main types of factoring: recourse and non-recourse. Factoring provides businesses with cash flow, debt collection services, and credit protection. It benefits both sellers by providing liquidity and buyers by providing credit terms. Major factoring companies in India include Canbank Factors, SBI Factors, and Citi Bank. Factoring involves a client selling goods/services, assigning debts to the factor, the factor providing up to 80% funding and collecting payment from customers.
This document discusses various aspects of business planning and attracting investors. It covers identifying investor types, project requirements, building a business plan, and conducting due diligence. Key points include outlining investor options like VCs, angels, banks; requirements like a strong team, large addressable market; components of business plans and due diligence reviews that evaluate areas like sales, accounting, and value creation. The overall content provides an overview of planning and fundraising considerations.
This document discusses cash flow forecasting. It defines cash flow as the amounts of money flowing into and out of a business over time, noting that cash flow is not the same as profit. Cash inflows include receipts from sales, debtors, loans, interest, and asset sales. Cash outflows include purchases, creditors, loan repayments, rent, and asset buys. The document explains how to construct a cash flow forecast by listing cash inflows and outflows over time periods. Cash flow forecasting helps identify potential cash flow problems and allows businesses to plan expenditures and seek additional cash if needed to avoid liquidity issues.
Accounts receivables are debts owed by customers from the sale of goods or services. Accounts receivable management involves making decisions to maximize returns on these current assets through sound credit policies and practices. The objectives are to maximize the value of the firm through an optimal balance of risk and return, and to optimize investment in accounts receivables to increase sales, market share, and profits. Key factors that influence accounts receivables include credit terms, collection policies, seasonal business variations, and credit sales volumes. Metrics like debtors turnover ratio, average collection period, aging schedules, and collection matrices help evaluate accounts receivable performance and liquidity.
The document discusses succession planning and business valuation for owners looking to sell their companies. It notes that 20% of businesses are for sale at any given time but only 5% actually sell, usually due to being overpriced or unresolved issues prompting the sale. When valuing a business, its financial position determines whether the valuation is based on discretionary cash flow, the fair market value of assets, or requires a discount due to losses. The sale process involves preparing financially, marketing the business, negotiating terms, and closing the deal, which may include a consulting agreement for the seller. Methods for determining a business's value include industry multipliers, discounted cash flow analyses, and agreed-upon sale price negotiations between buyer and seller.
Short-term financing refers to loans of up to 12 months that are used to finance short-term assets and cash flow needs. Common types of short-term financing include overdrafts, trade credit, loans, and credit cards. Firms need short-term financing to finance inventory or meet growth needs when cash flow is insufficient. Spontaneous financing like accounts payable and accrued expenses also provide financing that fluctuates with sales volume without requiring additional credit. Trade credit is a major type of spontaneous financing where suppliers provide credit for 28 days.
Simple ideas on Cashflow management for beginnersYC Lim
This document provides an overview of cashflow management and its importance for financial freedom. It discusses budgeting income and expenses, paying oneself first through savings, managing loans and credit cards, and starting the process through reviewing finances, prioritizing spending, and increasing financial knowledge over time. The goal of cashflow management is to live below one's means in order to achieve financial independence and security for retirement as costs rise over the decades.
Recievable Management in FMCG Sector:A sSudy of Selected Compniesprofessionalpanorama
The current study has tried to examine the sources used by the companies to finance their working capital requirements and to analyse and evaluate the receivables management. The present work therefore is a modest attempt in this direction by undertaking a study of Receivables Management. The study has also examined the liquidity position of companies. The study analysed the liquidity position of a limited sample consisting of five companies i.e. Nestle, HUL, Britannia, ITC and Dabur. The study of liquidity position is based only on one tool i.e. Ratio Analysis. Further the study is based on last 10 years Annual Reports of selected companies taken into consideration. As only FMCG sector was studied so the findings could only be generalised to this sector’s firms. Study of receivables management is very crucial for all firms. Unless the working capital is planned, managed and monitored effectively, company cannot earn profit and increase its turnover and it also helps in removing bottlenecks. Many companies go under because of cash flow issues, rather than declining profitability. Hence, traditional prudence always suggests that a firm should have sufficient cash to cover its immediate liabilities. However, there is a growing breed of FMCG companies that claim otherwise. Unlike most other industries, the turnover of a FMCG company is not limited by its ability to produce, but its ability to sell. They can generate cash so quickly they actually have a negative working capital. This happens because customers pay upfront and so rapidly, the business has no problem raising cash (like Nestle, Britannia). In these companies products are delivered and sold to the customer before the company even pays for them. A negative working capital is a sign of managerial efficiency in a business with low inventory and accounts receivables (which means it operates on an almost strictly cash basis). In other situation, it is a sign a company may be facing bankruptcy or serious financial trouble.
Preparing A B Plan For Equity InvestmentAnjana Vivek
The document provides guidance on preparing an effective business plan for seeking equity investment. It advises considering the perspective of an equity investor, who will be looking for a company that can significantly increase in value over 4-5 years through rapid growth. The business plan should clearly outline the business idea, team, market opportunity, marketing strategy, competition, financial projections, and other key details. Presenting the plan in a clear, concise format is important to engaging the investor.
Rational Investments & Research is an investment advisory and research company that offers financial advice and equity research services for Indian and global stock markets. It follows a long-term value investment approach based on the principles of Benjamin Graham and Warren Buffett. The company evaluates investment opportunities based on the business economics, management honesty and competence, and purchase price with a margin of safety. It does not offer speculative or short-term investment options. The company aims to become an independent investment advisor and add long-term value for clients through a rational investment approach.
Unit ii marketing-investment_(marketing_finance)[1]shrund
Trade credit arises when a firm sells products or services on credit and does not receive immediate cash payment. This creates accounts receivable that the firm expects to collect in the near future. Maintaining receivables involves costs such as capital costs from blocked financial resources, administrative costs for maintaining records, and collection costs. However, it also provides benefits like increased sales from offering credit and higher profits. Key factors that affect the size of receivables include sales levels, credit policies, terms of trade like credit periods and cash discounts. Firms must carefully manage receivables to limit risks and costs while maximizing benefits.
An earn-out agreement is used when selling a company where the purchase price is disputed. It allows the buyer to pay part of the price upfront and the remainder over time based on the company's performance. Key terms to negotiate include the performance metrics, payment schedule, formulas, and potential tax implications. While earn-outs can bridge valuation differences, careful drafting is needed to avoid disputes given the complex relationship between buyer and seller during the earn-out period.
Management Of Inventories And Accounts Receivables Units 14 And 15Augustin Bangalore
This document discusses various aspects of inventory and accounts receivable management. It defines key terms like economic ordering quantity (EOQ), reorder level, inventory turnover ratio, ABC analysis, and bill of materials. It provides formulas to calculate EOQ and discusses how to determine optimal inventory levels. Examples are given to illustrate calculation of EOQ, analysis of extending credit terms, and classification of inventories using ABC analysis. The document also briefly explains perpetual inventory systems and various committees that have made recommendations around working capital management in India.
The science and art of Startup ValuationsAnjana Vivek
Insights on Valuation and Negotiations… OR … how Can You can get a better price. ..whether for M&A or VC or strategic investment. Valuation is Subjective and Objective; there is a math to valuation, there are Business models which are captured in financial models and spread sheets. There is scenario analysis and sensitivity analysis. There are premiums and discounts assigned to multiple factors. This objective math is impacted by subjectivity of the person(s) doing the calculation, for example, if you are an unlisted company, is the discount factor 50% or 80% or somewhere in-between? This presentation sets out the methods and process of valuation with a few specific examples on valuations for different cases, including mentoring, acceleration, investment and more.
Firms often need short-term financing to meet growth needs or match short-term assets. Common sources include bank loans, trade credit, and commercial paper. Bank loans include promissory notes and lines of credit, while trade credit involves delayed supplier payments. The cost of financing includes stated interest rates plus various fees, and is often calculated as an effective annual percentage rate (APR). Accounts receivable and inventory can sometimes be used as collateral for short-term loans.
Icai national seminar m&a-deal valuationAnjana Vivek
Some pointers on Deal Valuation which is beyond numbers, including some questions 'to trigger thinking' related to valuation from a buyer/seller perspective
This presentation is designed to:
- clarify common confusion between profit and cash in the bank
- provide practical actions that you can immediately use in your business
- offer an example of a cash flow report that can help a business owner
Factoring is a financial arrangement where a business sells its accounts receivable (invoices) to a third party (called a factor) at a discount. There are two main types of factoring: recourse and non-recourse. Factoring provides businesses with cash flow, debt collection services, and credit protection. It benefits both sellers by providing liquidity and buyers by providing credit terms. Major factoring companies in India include Canbank Factors, SBI Factors, and Citi Bank. Factoring involves a client selling goods/services, assigning debts to the factor, the factor providing up to 80% funding and collecting payment from customers.
This document discusses various aspects of business planning and attracting investors. It covers identifying investor types, project requirements, building a business plan, and conducting due diligence. Key points include outlining investor options like VCs, angels, banks; requirements like a strong team, large addressable market; components of business plans and due diligence reviews that evaluate areas like sales, accounting, and value creation. The overall content provides an overview of planning and fundraising considerations.
This document discusses cash flow forecasting. It defines cash flow as the amounts of money flowing into and out of a business over time, noting that cash flow is not the same as profit. Cash inflows include receipts from sales, debtors, loans, interest, and asset sales. Cash outflows include purchases, creditors, loan repayments, rent, and asset buys. The document explains how to construct a cash flow forecast by listing cash inflows and outflows over time periods. Cash flow forecasting helps identify potential cash flow problems and allows businesses to plan expenditures and seek additional cash if needed to avoid liquidity issues.
Accounts receivables are debts owed by customers from the sale of goods or services. Accounts receivable management involves making decisions to maximize returns on these current assets through sound credit policies and practices. The objectives are to maximize the value of the firm through an optimal balance of risk and return, and to optimize investment in accounts receivables to increase sales, market share, and profits. Key factors that influence accounts receivables include credit terms, collection policies, seasonal business variations, and credit sales volumes. Metrics like debtors turnover ratio, average collection period, aging schedules, and collection matrices help evaluate accounts receivable performance and liquidity.
The document discusses succession planning and business valuation for owners looking to sell their companies. It notes that 20% of businesses are for sale at any given time but only 5% actually sell, usually due to being overpriced or unresolved issues prompting the sale. When valuing a business, its financial position determines whether the valuation is based on discretionary cash flow, the fair market value of assets, or requires a discount due to losses. The sale process involves preparing financially, marketing the business, negotiating terms, and closing the deal, which may include a consulting agreement for the seller. Methods for determining a business's value include industry multipliers, discounted cash flow analyses, and agreed-upon sale price negotiations between buyer and seller.
Short-term financing refers to loans of up to 12 months that are used to finance short-term assets and cash flow needs. Common types of short-term financing include overdrafts, trade credit, loans, and credit cards. Firms need short-term financing to finance inventory or meet growth needs when cash flow is insufficient. Spontaneous financing like accounts payable and accrued expenses also provide financing that fluctuates with sales volume without requiring additional credit. Trade credit is a major type of spontaneous financing where suppliers provide credit for 28 days.
Simple ideas on Cashflow management for beginnersYC Lim
This document provides an overview of cashflow management and its importance for financial freedom. It discusses budgeting income and expenses, paying oneself first through savings, managing loans and credit cards, and starting the process through reviewing finances, prioritizing spending, and increasing financial knowledge over time. The goal of cashflow management is to live below one's means in order to achieve financial independence and security for retirement as costs rise over the decades.
Recievable Management in FMCG Sector:A sSudy of Selected Compniesprofessionalpanorama
The current study has tried to examine the sources used by the companies to finance their working capital requirements and to analyse and evaluate the receivables management. The present work therefore is a modest attempt in this direction by undertaking a study of Receivables Management. The study has also examined the liquidity position of companies. The study analysed the liquidity position of a limited sample consisting of five companies i.e. Nestle, HUL, Britannia, ITC and Dabur. The study of liquidity position is based only on one tool i.e. Ratio Analysis. Further the study is based on last 10 years Annual Reports of selected companies taken into consideration. As only FMCG sector was studied so the findings could only be generalised to this sector’s firms. Study of receivables management is very crucial for all firms. Unless the working capital is planned, managed and monitored effectively, company cannot earn profit and increase its turnover and it also helps in removing bottlenecks. Many companies go under because of cash flow issues, rather than declining profitability. Hence, traditional prudence always suggests that a firm should have sufficient cash to cover its immediate liabilities. However, there is a growing breed of FMCG companies that claim otherwise. Unlike most other industries, the turnover of a FMCG company is not limited by its ability to produce, but its ability to sell. They can generate cash so quickly they actually have a negative working capital. This happens because customers pay upfront and so rapidly, the business has no problem raising cash (like Nestle, Britannia). In these companies products are delivered and sold to the customer before the company even pays for them. A negative working capital is a sign of managerial efficiency in a business with low inventory and accounts receivables (which means it operates on an almost strictly cash basis). In other situation, it is a sign a company may be facing bankruptcy or serious financial trouble.
Preparing A B Plan For Equity InvestmentAnjana Vivek
The document provides guidance on preparing an effective business plan for seeking equity investment. It advises considering the perspective of an equity investor, who will be looking for a company that can significantly increase in value over 4-5 years through rapid growth. The business plan should clearly outline the business idea, team, market opportunity, marketing strategy, competition, financial projections, and other key details. Presenting the plan in a clear, concise format is important to engaging the investor.
Rational Investments & Research is an investment advisory and research company that offers financial advice and equity research services for Indian and global stock markets. It follows a long-term value investment approach based on the principles of Benjamin Graham and Warren Buffett. The company evaluates investment opportunities based on the business economics, management honesty and competence, and purchase price with a margin of safety. It does not offer speculative or short-term investment options. The company aims to become an independent investment advisor and add long-term value for clients through a rational investment approach.
Unit ii marketing-investment_(marketing_finance)[1]shrund
Trade credit arises when a firm sells products or services on credit and does not receive immediate cash payment. This creates accounts receivable that the firm expects to collect in the near future. Maintaining receivables involves costs such as capital costs from blocked financial resources, administrative costs for maintaining records, and collection costs. However, it also provides benefits like increased sales from offering credit and higher profits. Key factors that affect the size of receivables include sales levels, credit policies, terms of trade like credit periods and cash discounts. Firms must carefully manage receivables to limit risks and costs while maximizing benefits.
An earn-out agreement is used when selling a company where the purchase price is disputed. It allows the buyer to pay part of the price upfront and the remainder over time based on the company's performance. Key terms to negotiate include the performance metrics, payment schedule, formulas, and potential tax implications. While earn-outs can bridge valuation differences, careful drafting is needed to avoid disputes given the complex relationship between buyer and seller during the earn-out period.
This document defines and provides examples of window dressing in finance, banking, and accounting. Window dressing refers to actions taken to improve the appearance of financial statements, such as postponing payments to increase reported cash or accelerating revenue recognition. While not always illegal, it can mislead investors and other stakeholders. The document discusses why companies engage in window dressing, who benefits, methods used, disadvantages, and how to identify it.
1. The document discusses accounting standards for revenue recognition. It outlines criteria for determining when to recognize revenue from sales of goods, services, interest, royalties and dividends.
2. Revenue is recognized when it is probable future economic benefits will flow to the entity and can be reliably measured. For sale of goods, revenue is recognized when risks and rewards of ownership transfer to the buyer.
3. Interest revenue is recognized using the effective interest method. Royalties and dividends are recognized on an accrual basis according to agreements.
Receivables management by Aakash TiwariAAKASH TIWARI
Receivables, also known as accounts receivable, refer to money owed by customers who have purchased goods or services on credit. Effective receivables management aims to determine credit policies that maximize sales revenue while minimizing costs associated with extending credit, such as collection costs, capital costs, delinquency costs, and default costs. The document discusses key aspects of receivables management including evaluating customer creditworthiness, setting appropriate credit terms, and balancing the costs and benefits of maintaining receivables.
One of the major issues in the company is the controlling of the collection period and developing optimum credit policy that minimizing the company loses, i.e how to trade off and balance between two costs, the first is carrying costs and the second is the opportunity costs of a particular credit policy. In other wards to define the point where the total credit cost is minimized.
VIRIMAYI CHINYAMA -Managing cash capital fianancing supply chainVirimayi Chinyama
This document discusses managing cash and capital as well as financing the supply chain. It covers monitoring key aspects of working capital like inventory, accounts receivable, accounts payable and cash flow. Supply chain transactions can be financed through bank credit lines, supplier credit terms and various loan options. The capital structure, or sources of funding from owners versus lenders, is also addressed. Having too much debt poses risks but low-cost borrowing can boost profits if managed effectively.
- The document discusses receivables management. Receivables refer to amounts owed by customers from credit sales.
- The objectives of receivables management include optimizing investment in receivables, balancing credit sales and investment, maximizing firm value, and achieving a trade-off between risk and return.
- Costs associated with receivables include opportunity costs, collection costs, delinquency costs, and default costs. Firms must choose an optimal credit policy that balances liberal policies which increase sales versus stringent policies which reduce risks.
The document discusses how payment over time (leasing) can allow customers to implement energy projects more quickly and efficiently by enjoying the benefits of the investment immediately rather than having to wait years to break even. Leasing provides tax advantages where customers can receive 100% tax allowances on payments, and it allows customers to spread costs over monthly payments while retaining liquidity. The benefits of leasing include faster returns, positive cash flow, tax savings, preserving credit lines, flexibility to take on additional projects, and lower approval levels for decisions.
Factoring Finance: A Quick Guide for Small Business OwnersM1xchange
Running a small business comes with its fair share of challenges, and one of the most significant of those is cash flow. Without enough cash on hand, it can be challenging to pay suppliers, employees, and other expenses. One solution that many small business owners turn to is factoring finance. In this post, we'll explore what factoring finance is and how it can benefit small business owners.
The document discusses working capital management of receivables. It states that firms offer credit to customers to boost sales, tying up funds in receivables. The objectives of receivables management are to optimize returns on this investment. It involves determining credit policies like credit standards, terms and collection efforts to balance sales and costs of carrying debtors. Techniques discussed include credit analysis, controlling receivables, financing options like pledging and factoring receivables, and tools like reengineering receivables processes, technology, credit scoring and collection policies.
The document discusses various methods for managing receivables, including:
1. Collecting payments quickly to reduce financing costs while balancing extending credit to boost sales. This requires weighing costs like bad debts against lost revenue.
2. Using a credit control department to assess customer risk, set credit limits and terms, and chase slow payments.
3. Offering early payment discounts or using invoice discounting and factoring, where a company advances funds against receivables for a fee.
The examples calculate the costs and benefits of different receivables management policies like increasing credit staff, early discounts, and using a factoring company for a manufacturing business.
Topic 3 tools techniques of managing of receivablesRAJKAMAL282
The document discusses various techniques for managing accounts receivable, including establishing a credit policy, assessing customer creditworthiness, setting credit limits, invoicing promptly and collecting overdue debts, and monitoring the accounts receivable system. It also describes invoice discounting and factoring as methods to speed up the receipt of funds from accounts receivable, outlining the key services provided by invoice discounters and factors as well as the advantages and disadvantages of each approach.
This document discusses factoring, which is a financial transaction where a business sells its accounts receivable to a third party called a factor in exchange for immediate cash. There are several types of factoring described, including domestic, international, recourse, non-recourse, maturity, and invoice factoring. The key differences between factoring and a bank loan are also outlined. A case study is then provided showing how a company used export factoring and purchase order financing to fulfill several contracts requiring upfront capital.
Introduction to factoring, history, introduction to act, important features of the act, rights, obligation, responsibility, penality, shortcomings of the act.
Working capital refers to the funds available to a company for day-to-day operations and is calculated as current assets minus current liabilities. It provides capital for operational expenditures like raw materials, wages, transportation, taxes, etc. Many businesses use working capital financing to improve cash flow and build working capital quickly through sources like trade credit, short-term bank loans, commercial paper, invoice discounting, and factoring. These sources free up cash for short-term growth by meeting operating expenses and purchasing inventory. The main benefits are promoting operational efficiency, ensuring funds for daily operations, increasing production and sales volumes, and providing speed and flexibility to handle cash flow fluctuations.
The document discusses various accounting concepts and methods related to revenue recognition. It covers:
1) The operating cycle of receiving cash from customers, purchasing materials, converting materials to products, storing products, selling products, and receiving cash again.
2) Basic revenue recognition criteria of recognizing revenue when an entity has substantially performed what is required to earn income and the amount can be reliably measured.
3) Methods of revenue recognition including delivery of goods or services, consignment, franchise fees, percentage of completion for long-term contracts, and completed contracts.
4) Factors that determine the amount of revenue recognized such as net realizable value, direct write-off vs allowance methods for uncollectible accounts
This document discusses guidelines for revenue recognition under accounting standards. It covers the principles that revenue should be realized or realizable and earned. It describes different methods of revenue recognition that may be used, such as at the point of sale, before or after delivery, or over time using percentage of completion. It also discusses alternative accounting methods used for long-term contracts. Additionally, it covers potential issues with revenue recognition like sales with rights of return, discounts, or buyback agreements. Special transactions involving consignment or principal-agent relationships are also addressed.
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Avondale Guide - Deal Structures
1.
Guide:
Deal
Structures
www.avondale.co.uk
Page
1
of
6
01737
240888
This
guide
is
not
definitive.
Accuracy
is
not
guaranteed
and
it
does
not
replace
professional
advice.
Contents
The
successful
sale
of
a
business
requires
careful
planning,
good
timing
and
an
effective
approach.
It
involves
presenting
the
business
in
the
right
light,
intelligent
research
and
carefully
approaching
the
right
buyers,
avoiding
technical
pitfalls
and
creating
and
managing
a
competitive
process.
The
steps
are:
Business
sale
transactions
are
rarely
structured
all
in
cash,
especially
in
the
current
climate.
For
a
number
of
reasons
including
tax,
financing,
buyer
hedging
and
maximisation
of
value,
deals
can
be
structured
in
a
variety
of
ways
and
we
have
focused
on
some
of
the
more
common
ones
below:
• Cash
• Deferred
payments
• Retentions
• Performance
related
payments
(PRP)
• Earn
Outs
• Elevator
Deals
• Shares
• Mergers
Cash
in
Full
on
Completion
“All
Cash”
on
completion
deals
can
be
achieved.
Buyers
are
happy
as
they
have
immediate
ownership,
and
sellers
are
happy
as
they
have
a
minimum
risk
on
the
payment.
“All
Cash”
is
ideal
as
a
seller
if
you
are
retiring,
the
business
is
not
dependent
on
you
and
you
categorically
want
an
immediate
exit.
However,
it
may
not
be
the
best
way
to
maximise
the
value.
If
the
business
is
dependent
on
the
vendor
or
has
other
high
risks
associated,
one
key
contract
or
supplier
for
example,
it
may
not
even
be
achievable
as
buyers
seek
to
hedge
their
handover
risk.
Deferred
payment
Deferred
payments
are
where
a
percentage
of
the
price
is
paid
to
the
vendor
on
a
fixed
basis
over
a
fixed
period
of
time,
usually
with
interest.
The
deferred
part
of
the
deal
is
effectively
a
vendor
loan
and
is
usually
put
in
place
to
help
the
buyer
finance
the
purchase,
particularly
if
banks
are
unsupportive.
It
may
also
enable
some
of
the
price
to
be
paid
out
of
future
profits.
The
purchase
price
is
defined
from
the
outset,
a
proportion
of
the
price
is
payable
on
completion
and
the
remainder
is
payable
over
a
period
of
time.
In
a
‘heads
of
terms’
(the
document
that
sets
out
an
agreed
deal)
it
might
appear
as
follows:
Item
Amount
Payable
Note
Initial
payment
£1,000,000
On
completion
For
the
purchase
of
100%
of
the
share
capital
of
the
business.
Deferred
payments
£500,000
Payable
over
2
years
following
completion
8
equal
quarterly
payments
of
£62,500
will
be
made.
The
first
payment
of
£62,500
will
be
made
3
months
after
completion,
and
a
further
quarterly
payment
of
£62,500
will
be
made
every
quarter
up
to
and
including
24
months
after
completion.
Total
£1,500,000
2.
Guide:
Deal
Structures
www.avondale.co.uk
Page
2
of
6
01737
240888
This
guide
is
not
definitive.
Accuracy
is
not
guaranteed
and
it
does
not
replace
professional
advice.
A
seller
should
only
accept
a
deferred
payment
structure
if:
• Personal
guarantees
are
given
on
the
deferred
amount,
preferably
bank
guarantees
(if
they
are
available
could
you
get
the
cash
instead?)
• Some
form
of
security
in
the
form
of
a
debenture
or
additional
security
from
the
buyers
freehold
Retentions
Retentions
are
also
a
form
of
deferred
payment.
The
idea
is
that
the
purchaser
pays
all
the
money
on
completion
but
retains
a
proportion,
in
an
Escrow
account
held
by
the
vendor’s
solicitors,
in
lieu
of
certain
events.
It
may
be
just
whilst
the
final
net
asset
value
of
a
company
is
calculated
at
completion,
or
in
lieu
of
a
contract
being
renewed.
Retentions
work
well
because
sellers
can
see
their
money,
but
buyers
do
have
a
means
of
straight
forward
claw
back
in
certain
pre-‐defined
eventualities
if
they
need
it.
Performance
Related
Payments
(PRP)
An
initial
payment
is
made
on
completion
and
then
secondary
performance
related
payments
are
made
subject
to
certain
performance
caveats.
These
are
often
used
to
help:
• The
buyer
‘hedge’
risks
and
finance
the
deal
from
future
profits
• The
seller
‘maximise’
the
deal
by
linking
it
to
future
expected
growth.
Example
1
PRP:
In
the
first
example
we
have
assumed
that
the
business
being
purchased
has
historically
had
a
turnover
of
circa
£2,000,000
per
annum,
and
that
the
PRP
is
going
to
be
linked
to
the
business
continuing
at
this
level.
Item
Amount
Payable
Note
Initial
payment
£1,000,000
On
completion
For
the
purchase
of
100%
of
the
share
capital
of
the
business.
PRP
£500,000
(estimated)
Payable
over
2
years
following
completion
8
equal
quarterly
payments
will
be
made
commencing
3
months
after
completion,
and
continuing
every
quarter
up
to
and
including
24
months
after
completion.
Each
quarterly
payment
will
be
calculated
as
12.5%
of
the
turnover
achieved
in
the
quarter
immediately
preceding
each
payment.
Target
£1,500,000
The
rationale
behind
this
is
that
the
business
turns
over
£2
million
per
annum,
therefore
should
turn
over
£4
million
in
the
two
years
following
completion.
The
target
PRP
is
£500,000,
which
is
12.5%
of
the
expected
turnover
over
the
two
year
period.
If
the
business
under
performs
the
seller
will
receive
less
than
the
target
price,
but
if
the
business
exceeds
its
targets
the
seller
will
receive
more
that
the
target
price.
Sometimes
upper
and/or
lower
limits
are
imposed
on
such
deals,
and
sometimes
there
is
a
minimum
level
at
which
the
business
must
perform,
and
if
it
fails
to
do
so
no
PRP
is
made.
3.
Guide:
Deal
Structures
www.avondale.co.uk
Page
3
of
6
01737
240888
This
guide
is
not
definitive.
Accuracy
is
not
guaranteed
and
it
does
not
replace
professional
advice.
Example
2
PRP:
In
the
second
example
below,
the
business
has
a
contract
with
a
client
that
contributes
a
significant
amount
to
the
business’s
turnover.
We
have
assumed
that
the
contract
is
renewed
annually:
Item
Amount
Payable
Note
Initial
payment
£1,000,000
On
completion
For
the
purchase
of
100%
of
the
share
capital
of
the
business.
PRP
£500,000
(conditional)
Estimated
6
months
after
completion
The
business
currently
has
a
one
year
contract
to
supply
goods
to
“ABC
Group
Ltd.”
which
is
due
to
expire
approximately
6
months
after
completion.
If
the
business
is
successful
in
winning
a
renewal
of
this
contract
a
PRP
of
£500,000
will
be
made
on
renewal
of
the
contract.
Target
£1,500,000
A
seller
should
only
accept
a
Performance
Related
Payment,
if:
• The
operation
can
be
clearly
ring
fenced
as
a
standalone
venture,
enabling
the
policing
of
performance
so
the
value
of
the
payment
due
can
be
checked
• Access
of
the
company’s
records
can
be
given
to
the
seller
so
they
can
‘police’
the
payments
• The
buyer
will
issue
statements
regarding
the
payments
• Guarantees
/
security
on
the
payment
is
available
(as
with
deferred
payments
section
2
above)
• The
performance
caveat
looks
achievable
based
on
forecasts.
Is
it
based
on
current
performance
or
growth?
• The
PRP
has
been
approached
with
caution.
Who
defines
the
profit
and
how?
Once
the
business
is
out
of
the
seller’s
hands,
can
they
control
costs?
Earn
Outs
These
are
effectively
performance
related
payments
where
the
seller
is
expected
to
stay
and
work
to
achieve
the
PRP
through
their
work
on
a
service
contract.
The
idea
is
that
the
vendor
has
a
financial
incentive
to
help
make
a
success
of
the
business
or
the
larger
organisation
after
sale.
Elevator
Deals
Elevator
deals
are
for
ambitious
sellers
and
can
consequently
be
called
‘cash
in
some
of
your
chips
and
keep
playing.’
They
provide
a
mechanism
to
link
the
purchase
price
of
a
business
to
its
potential
future
value
or
profits.
An
ongoing
involvement
in
the
business
is
required
by
the
seller
in
order
to
drive
and
‘elevate’
the
value
and
profitability
going
forward.
By
retaining
shares
in
their
business
or
by
taking
shares
from
the
buyer,
sellers
have
the
potential
to
truly
maximise
the
overall
value
of
the
sale
transaction.
Aren’t
elevator
deals
mergers?
No,
because
in
the
majority
of
deals
a
controlling
interest
changes
hands.
Many
business
owners
would
consider
a
merger
but
in
reality
a
good
one
is
hard
to
come
by
due
to
issues
of
control.
One
party
will
normally
quite
rightly
want
control,
and
the
chances
of
exact
equals
meeting
are
hard.
Let’s
face
it;
it’s
very
difficult
to
run
a
business
by
committee,
however
democratic
the
organisation
is.
Ultimately
the
buck
has
to
stop
somewhere
and
for
truly
effective
visionary
growth
someone
has
to
be
leading,
calling
the
shots.
Who
do
elevator
deals
work
well
for?
• Organisations
with
underdeveloped
profits
as
a
result
of
youth,
lack
of
investment
capital
or
where
profits
are
being
used
for
expansion.
Consequently
if
an
outright
sale
is
sought
these
companies
will
be
undervalued
by
the
market.
• Businesses
with
a
strong
track
record
of
growth
and
with
good
future
potential.
• Young
ambitious
sellers
with
more
to
give
who
are
willing
to
stay
in
the
business
and
maximise
their
future
potential.
4.
Guide:
Deal
Structures
www.avondale.co.uk
Page
4
of
6
01737
240888
This
guide
is
not
definitive.
Accuracy
is
not
guaranteed
and
it
does
not
replace
professional
advice.
• Companies
where
sustainability
as
an
‘independent’
is
questionable
due
to
lack
of
capital
to
invest
or
in
a
fast
moving
market.
• Sellers
where
the
fun
of
the
start
up
has
faded
and
they
want
a
new
challenge.
How
does
the
buyer
benefit?
• Getting
in
early
(possibly
cheaper)
before
the
potential
of
the
seller’s
company
is
realised.
• By
helping
increase
the
seller’s
chance
of
realising
potential.
• Through
possible
economies
of
scale
between
the
combined
companies
helping
both
businesses
fulfil
their
future
value
and
profitability
after
the
deal.
• By
having
a
controlling
interest
after
an
acquisition
with
the
synergies
of
1+1
=
3,
that
is
the
creation
of
a
larger
company
with
greater
profits.
Possibly
even
a
size
of
company
that
may
leapfrog
the
multiples;
usually
the
bigger
the
profit
the
bigger
the
profit
multiple
used
in
valuation.
Ultimately
this
leads
to
larger
profits
and
greater
shareholder
value.
• By
locking
in
the
seller’s
employment
the
chance
of
maintaining
growth
momentum
is
increased.
• By
having
the
controlling
interest.
Mergers
are
really
only
a
‘myth’;
there
is
usually
a
lead
party.
What
are
the
typical
characteristics
of
an
elevator
deal?
(A
typical
elevator
deal
will
usually
have
at
least
some
of
the
following
characteristics)
• A
price
linked
to
the
future
profits
of
the
business
not
past
profits
and
possibly
linked
to
the
future
capital
value
of
the
business
in
the
form
of
a
shareholding.
• A
purchase
in
the
region
of
50%
of
the
company
enabling
the
vendor
to
‘bank
a
bit’
now.
• The
vendor
is
offered
a
percentage
in
the
buyer’s
business
or
NEWCO
formed.
Usually
there
will
be
a
plan
again
for
a
future
exit
to
liquidate
this
minority
shareholding,
hopefully
at
a
grown
value,
enabling
the
seller
‘to
elevate’
a
further
capital
sum.
• A
good
buyer
/
seller
synergy
makes
the
‘elevation’
on
offer
of
1+1
=
3
appear
achievable.
The
idea
is
that
the
two
together
will
not
only
make
more
money,
but
potentially
be
worth
more
combined
than
the
sum
of
the
two
individual
parts.
• Ideally
the
deal
will
help
‘the
seller’
realise
their
potential
by
taking
away
the
headache
of
running
the
business
(Finance/HR)
so
they
can
grow
it
on
their
combined
core
strengths.
• The
seller
retains
an
active
role
in
the
business,
probably
as
MD
or
Development
Director
enabling
them
to
contribute
to
the
growth
and
profitability
of
the
business
in
the
mid-‐term.
• A
good
solid
service
contract
on
commercial
terms
(usually
salaried
with
car,
pension,
healthcare)
being
offered
to
the
seller.
A
new
employment
agreement
will
be
put
in
place
with
some
entrenched
rights
so
they
cannot
be
easily
dismissed.
• A
typical
elevation
may
be
the
proposed
‘float’
of
the
sellers
and
buyers
combined
business
in
the
future.
When
should
a
seller
accept
an
elevator
deal?
ONLY
IF:
• They
are
happy
that
the
‘upfront
cash’
payable
on
completion
goes
a
good
way
to
the
current
value
of
their
business.
• They
know
that
the
shares
or
performance
payments
are
‘on
risk’.
For
instance
there
may
be
a
50/50
chance
of
achieving
value.
In
Roulette
-‐
Red
has
a
48%
chance
of
winning.
Remember
a
shareholding
is
only
as
valuable
as
the
willingness
of
a
third
party
to
pay
fair
value
for
those
shares.
• They
like
the
buyer
and
want
to
get
involved;
truly
believing
the
strategy
is
realistic.
The
seller
can
relate
to
the
buyer
and
the
buyer’s
philosophy.
Do
the
cultures
fit?
The
question
to
ask
is
“Can
I
work
with
this
guy
during
the
good
and
the
bad
times”.
As
part
of
this
understanding
the
seller
will
need
to
understand
that
the
target
company
is
no
longer
solely
theirs
and
they
will
need
to
work
more
collaboratively,
being
prepared
to
involve
others.
“How
will
I
deal
with
a
board
meeting
where
my
wishes
may
not
carry
the
day?”
On
the
other
side
of
the
coin,
the
buyer
will
also
have
to
get
used
to
the
seller
being
involved
in
their
business.
• The
end
game
is
thought
through.
How
will
you
realise
the
future
value
of
your
holding?
What
are
the
realistic
chances
of
a
successful
trade
sale
or
floatation?
Have
you
talked
about
the
buyer’s
exit
plans?
• They
are
prepared
to
work
in
the
business
for
a
few
more
years
–
“it’s
not
retirement
yet”.
5.
Guide:
Deal
Structures
www.avondale.co.uk
Page
5
of
6
01737
240888
This
guide
is
not
definitive.
Accuracy
is
not
guaranteed
and
it
does
not
replace
professional
advice.
• They
recognise
their
shareholding
is
today
‘on
risk’
and
they
are
willing
to
bank
a
bit
now
and
take
the
remainder
‘on
risk’
for
the
potential
of
maybe
doubling
their
money
again.
• They
can
explain
their
‘on
risk’
perception
to
their
Lawyers.
• The
shares
in
the
newco
or
buyers
company
are
enhanced
by
a
quality
shareholders
agreement
with
caveats
that:
• Value
the
shares
pro-‐rata
• Offer
first
refusal
to
‘buy
each
other
out’
either
on
a
voluntary
transfer
or
a
deemed
transfer
(for
example
on
death
and
bankruptcy
or
ceasing
to
be
an
employee)
• Cross
options
if
the
seller
dies
ensuring
the
estate
benefits
from
cash
not
a
minority
shareholding.
To
ensure
that
the
company
or
the
other
shareholder
has
the
cash
to
acquire
a
deceased’s
shareholding
it
may
be
appropriate
for
a
life
policy
to
be
put
in
place.
• A
seat
on
the
Board
to
reflect
the
shareholding
• Agreed
minority
shareholding
protection
to
ensure
that
the
minority
shareholder
has
rights
of
veto
over
certain
fundamental
matters.
• The
minimum
net
asset
value
caveats
are
agreed
in
advance
as
protection
if
they
are
accepting
shares
in
the
buyer’s
company.
Elevator
Deal
Examples
Example
1:
A
fast
track
company
is
valued
on
current
profits
today
at
£1.2
million.
This
is
because
the
profits
are
being
used
to
fund
growth.
An
Elevator
deal
is
agreed
with
a
buyer
seeking
an
AIMS
float
in
2
years:
£1,000,000
On
completion.
Cash
and
therefore
secure.
£800,000
Preference
shares
Preference
shares
with
interest
in
2
years.
A
preference
share
is
secured
by
the
company,
but
of
course
if
all
goes
badly
in
the
company
they
are
worthless
and
impossible
to
redeem.
Effectively
this
is
a
2
years
‘interest
only’
ON
RISK
loan
to
the
buyer.
This
could
be
loan
notes
or
a
performance
related
payment
on
future
profits.
£150,000
5%
minority
Shareholding
with
good
shareholders
agreement
5%
at
today’s
value
is
estimated
to
be
£150,000
but
of
course
shares
can
go
up
as
well
as
down
so
this
is
ON
RISK
in
order
to
hopefully
be
worth
double
the
money
or
more
(possibly
even
£500,000
after
a
float?).
£100,000
Salary
plus
Pension,
car
and
Healthcare
Example
2:
A
profitable
technology
business
is
currently
valued
at
say
£750,000
on
profits,
however
it
is
heavily
dependent
on
the
vendor
and
therefore
very
hard
to
realise
this
value.
In
addition
the
market
is
moving
quickly
with
the
cost
of
‘development’
becoming
higher
and
as
such
hard
for
the
business
to
stay
independent
and
sustain
revenue
streams.
£250,000
On
completion.
Cash
and
therefore
secure.
Target
£250,000
+
20%
minority
Shareholding
with
good
shareholders
agreement
20%
at
today’s
value
is
estimated
at
£250,000
but
of
course
shares
can
go
up
as
well
as
down
so
this
is
ON
RISK
in
order
to
hopefully
be
worth
double
the
money
or
more
(possibly
even
£500,000
after
a
float?).This
is
agreed
subject
to
the
buyers
having
a
min
net
asset
of
£500,000.
£100,000
Salary
+
Pension,
car
and
Healthcare
6.
Guide:
Deal
Structures
www.avondale.co.uk
Page
6
of
6
01737
240888
This
guide
is
not
definitive.
Accuracy
is
not
guaranteed
and
it
does
not
replace
professional
advice.
‘Elevator’
Summary
“Cash
some
of
your
Chips
and
Keep
on
Playing”
-‐
Elevator
deals
provide
sellers
with
the
opportunity
to
bank
half
their
money
now
‘in
the
Casino’
perhaps
paying
the
mortgage
off
or
buying
basic
financial
independence
(the
ability
to
cease
work
on
a
modest
lifestyle).
With
the
other
half
they
continue
to
‘Gamble’
with
the
aim
of
a
big
win
and
a
potential
to
double
this
half
again.
Both
parties
need
to
enter
into
the
arrangement
with
their
eyes
open,
with
similar
objectives
and
end
games.
Through
teamwork
with
the
buyer,
the
seller
may
get
back
the
job
they
enjoyed
-‐
developing
the
trade,
rather
than
working
on
the
business
(accounts/HR
and
finances).
The
seller
enjoys
a
new
journey,
having
secured
a
future
for
the
business
and
banking
a
base
line.
Shares
We
have
already
seen
in
Elevator
deals
how
some
buyers
and
sellers
will
offer
and
accept
shares
(usually
a
minority
shareholding)
in
some
transactions
despite
the
risks
involved
for
either
side.
Some
buyers
may
also
just
offer
shares
as
a
means
to
avoid
using
cash.
These
are
in
a
way
a
form
of
deferred
payments.
In
a
Private
Company
in
an
illiquid
market
sellers
should
approach
these
shareholdings
with
great
caution.
How
do
you
value
minority
shareholdings
and
how
do
you
sell
them?
Shares
in
Corporation
floated
on
the
stock
market
Public
Limited
Companies
(PLC’s)
are
closer
to
cash
and
may
have
an
interest
to
sellers.
After
all
subject
to
orderly
market
restrictions
that
will
normally
be
placed
on
them,
there
is
a
liquid
market
which
is
Public
thus
enabling
their
sale.
Some
Corporate
Buyers
particularly
of
small
Plc’s
will
have
to
offer
shares
in
order
to
help
them
raise
funding
from
Institutional
Investors.
The
idea
is
they
can
send
the
signal
to
the
markets
that
the
vendors
are
in
on
their
plans,
sharing
the
risks
and
prepared
to
help
them;
a
key
message
for
institutional
investors
to
be
prepared
to
offer
funding.
Don’t
forget
the
true
value
of
the
shares
is
the
quoted
price,
less
selling
costs,
on
the
day
they
can
be
sold,
not
the
day
they
are
received
at
completion.
Shares
can
go
down
as
well
as
up.
Mergers
Parties
may
seek
a
merger.
A
merger
is
a
combination
of
two
or
more
businesses
on
an
equal
footing
that
results
in
the
creation
of
a
new
reporting
entity.
The
shareholders
of
the
combining
entities
mutually
share
the
risks
and
rewards
of
the
new
entity.
In
the
SME
market
mergers
are
rare,
as
finding
2
companies
with
a
shared
vision
and
cultures
that
can
be
easily
integrated
often
leads
to
the
challenge
of
one
party
wanting
a
controlling
share.
This
often
stops
these
deals
completing.
Mergers
are
more
likely
to
occur
and
are
in
fact
more
common
in
PLC’s
where
shareholders
are
less
attached
both
directly
and
emotionally
to
the
running
of
the
business.
(NB:
Clear
will
not
act
in
the
sale
and
purchase
of
minority
shareholdings)
The
Parties
agree
to
instruct
early
on
appropriate
advisors
to
complete
a
transaction
of
this
size
in
the
timescale
proposed.
Each
party
shall
be
responsible
for
their
own
advisor’s
fees
and
costs
incurred
in
the
transaction.