July 2023 - Linden Law Partners

Key Considerations When Hiring an Investment Banker or Business Broker

Posted on July 12, 2023October 30, 2024 by lindenlawpart1

Deciding to hire an investment banker or a business broker is a significant step in the journey of any business owner. Whether you’re considering an acquisition or selling your company, these professionals can be instrumental in helping you navigate the complex M&A landscape. Here are a few key considerations to bear in mind before you make your selection:

Experience & Expertise: Does the broker or banker have a proven track record in your specific industry? Their knowledge about your sector’s landscape, trends, and key players can make a big difference.
Deal Size and Structure: Both investment bankers and business brokers have their specialties when it comes to deal sizes. Make sure their expertise matches the scale of the deal you’re planning to execute.
Network: One of the primary reasons to hire a banker or broker is their network. Do they have strong relationships with potential buyers, sellers, or investors in your industry?
Fee Structure: Understand their fee structure thoroughly and are often negotiable. Fee structures routinely include a retainer and success fee (and sometimes the retainer can be applied against the success fee). Fee percentages and terms can vary widely and are typically negotiable. The smaller the deal, the higher the fee percentage in most cases. Sometimes there are tiered structures on fees, i.e., a set percentage if the deal is at or below a certain amount, with increasing percentages for agreed upon levels above that (e.g., X percent for amounts above $10 million and below $12 million, Y percent for amounts above $12 million and below $14 million, Z percent for amounts above $14 million, and so on).
Tail Period: Also pay close attention to the “tail-period,” which is negotiable. The tail is the duration of time following the termination of the engagement during which the banker/broker is still entitled to receive its success fee if a transaction is completed. The most common tails range between 12 and 24 months.
Communication: The M&A process can be lengthy and stressful. Having a professional who communicates effectively and promptly is crucial.
Personal Fit: Like any professional relationship, it’s important to feel personally comfortable with the banker or broker. This often-overlooked aspect can play a key role in the success of your deal.

Conclusion:

Remember, hiring the right investment banker or business broker could be the difference between just closing a deal and closing a deal that exceeds your expectations. Take the time to choose wisely. Contact us if you have any questions or need any advice on this important step.

Calculated vs. Blind Risk: What is the Difference? Startup Founders Guide

Posted on July 10, 2023October 23, 2024 by lindenlawpart1

Startup Founders: Smart vs. Blind Risks in Influencer Era

When starting a business, ‘risk’ is not just a word, but a crucial part of the founder’s journey. Every decision has some risk, whether it’s entering a new market, seeking investor support, or introducing an innovative product.

However, it is important to recognize that not all risks are the same. The ability to navigate through this uncertain territory successfully is what sets apart experienced entrepreneurs from beginners. It is crucial to understand the distinction between ‘calculated risks’ and ‘blind risks.’

Influencer culture presents business ownership as glamorous and risk-taking as an exciting game with the motto ‘no risk, no reward’. Simplifying this overlooks the fact that uninformed, reckless choices can lead to severe consequences. These consequences can include financial ruin or the downfall of a potentially successful startup.

Successful startup founders, venture capitalists, and other investors take calculated risks, but they are not daredevils. They scrutinize every risk and its potential impact before taking a step forward. Blind risk-taking is not a part of their playbook, no matter how exciting or challenging the business idea may be.

The Mirage of Influencer Culture and Risk Taking

On social media, influencers show a positive view of business ownership. But it’s important to distinguish between what’s good and what’s not. Successful people rely on data, analysis, and planning, even though social media posts may suggest otherwise.

Influencers focus on the benefits of taking risks but don’t talk about the negative consequences of failure. This can lead their followers to have a limited understanding of business ownership. However, it’s essential to remember that high-stakes gambling and being a founder are not the same. The former is a game of chance, while the latter is a strategic play of calculated risks.

Real-life entrepreneurs know that they’re playing a long-term game, and one wrong move can result in disastrous consequences. They appreciate the fact that while risk-taking is necessary, it should never be blind.

The Difference Between Calculated and Blind Risk

A blind risk is one taken without any substantive assessment of its potential repercussions. It’s akin to diving into an unknown body of water without first checking its depth or any underlying hazards. Such risks may occasionally result in success, but it’s usually a product of sheer luck rather than strategic planning.

A calculated risk is a carefully assessed chance that considers the possible result and how possible it is to do. Moving forward, aware of the difficulties, but ready to confront any obstacles that may come our way. It’s not about avoiding risks; rather, it’s about taking intelligent, informed risks.

The maxim ‘fortune favors the bold’ should ideally be ‘fortune favors the informed and prepared.’

Calculated Risks: The Cornerstone of Business Success

Every successful entrepreneur or investor has a tale or two about a calculated risk that paid off. They rely on data, their experience, market trends, and professional advice before embarking on any risky endeavor.

Jeff Bezos left his well-paid job on Wall Street to start Amazon. Reid Hoffman founded LinkedIn during a tech bubble. These calculated risks led to great success.

Why do startup founders consider calculated risk-taking critical? The answer lies in the benefits it brings:

Opportunity Recognition: Spotting opportunities requires careful assessment of risks that others may not notice.
Competitive Advantage: Making informed decisions can position your startup to capitalize on industry trends, giving you a competitive edge.
Better Preparation: Understanding potential risks allows you to prepare for contingencies, thereby reducing their impact.
Increased Confidence: Taking calculated risks fosters increased confidence, as individuals back every decision with careful analysis and planning.

How to Take Calculated Risks?

So, how do you shift from taking blind risks to calculated ones? Here are some steps to consider:

Collect Information Before Deciding. Know your market, competition, and how your choice will impact key stakeholders.
Think About the Good and Bad. Choices have results. Consider the possible gains and dangers. This will help you decide if the gains are worth the dangers.
Get Expert Advice. Don’t ignore the importance of professional guidance. Talking to business advisors or lawyers can give you new ideas. They can help you see risks from different angles, so you understand them better.
Create a Risk Management Plan. A plan to manage risks helps you get ready for possible problems. The plan should include finding risks, knowing their impact, making strategies to reduce them, and setting up a monitoring system.
Adopt a Growth Mindset. Taking planned risks needs a growth mindset. See failures as chances to learn instead of obstacles. This mindset will aid you in dealing with the uncertain challenges of starting a business with strength and determination.

Conclusion: The Calculated Path to Success

Risk-taking is part of the founder’s journey. Yet, the type of risk you take can mean the difference between failure and success. Successful startup founders, venture capitalists, and savvy investors don’t take blind risks. Instead, they take calculated risks, carefully considering the potential outcomes, benefits, and downsides before deciding.

In the world of startups and business ownership, it’s not about avoiding risks; it’s about understanding them. Founders should look before they leap. The calculated risk, while less sensational than its blind counterpart, is a slow, steady, and strategic path to sustainable success.

Remember, if you take smart risks, you can overcome any obstacle. Sophisticated founders navigate the highs and lows of business through informed decisions. Don’t gamble on your dreams; invest in them with calculated risks – it’s the true path to unprecedented success.

Navigating the realm of calculated risk isn’t a solo journey. You need the right partners and guides by your side. Our seasoned team of business law professionals are ready to assist you in identifying, assessing, and managing your business risks. With us, you’re not just taking a leap of faith; you’re making a strategic move towards success.

To quote Mark Twain, “Good decisions come from experience. Experience comes from making bad decisions.” Let’s embark on a journey to make informed decisions, gain invaluable experience, and, ultimately, achieve business success.

About Linden Law Partners

At Linden Law Partners, we’ve helped hundreds of founders, startups, and investors with their businesses and investments. Contact us to discuss how we can help you.

Selling Your Business: Optimize Financial Performance and Accounting Practices Before Going to Market

Posted on July 7, 2023October 30, 2024 by lindenlawpart1

Question: What’s the most common area of a business needing improvement before being marketed for sale?

Answer: Financial performance and accounting practices.

Prospective buyers will closely scrutinize the financial health of a business, including profitability, cash flow, revenue trends, and growth potential. Ensuring financial records are accurate, up-to-date, and well-organized can significantly impact the perceived value of the business.

Selling Your Business with 6 Practices Before Going to Market

Here are some key aspects to focus on that will go a long way to netting you substantially more money when you’re ready to sell:

1. Clean Financial and Accounting Records.

Organize and maintain clear accounting records and financial statements, including profit and loss statements, balance sheets, and cash flow statements. Ensure that all transactions are accurately recorded, and there are no discrepancies.

2. Minimize High-Cost Debt.

Pay off or reduce outstanding debts, particularly those with high-interest rates. Excessive costly debt can deter potential buyers and negatively impact the company’s valuation.

3. Improve Profitability.

Identify areas where you can cut costs, increase revenue, or improve operational efficiency to boost the bottom line. This could involve renegotiating supplier contracts, streamlining processes, or investing in cost-saving technologies.

4. Optimize Working Capital.

Efficiently manage inventory, accounts receivable, and accounts payable to ensure adequate cash flow and demonstrate effective financial management.

5. Financial Projections.

Develop realistic financial projections that showcase the growth potential of your business. This can help prospective buyers understand the return on investment and future potential earnings.

6. Tax Compliance.

Ensure all tax filings and payments are up-to-date and in compliance with relevant laws and regulations.

So, have you done all you can with your financial and accounting practices to make a lasting impression on potential acquirers of your business?

At Linden Law Partners, in addition to being M&A legal specialists, we also understand the full spectrum of components required for an optimal M&A exit event. To this end, we support our clients from the outset and before going to market to greatly increase their odds of maximizing the outcome of their business sale. This includes not only advising on the process and initial advance preparations, but also helping them obtain access when needed to qualified accountants, investment bankers and other M&A specialists to ensure they (A) position their business as advantageously as possible before going to market for sale, and (B) assemble a first-rate deal team to navigate them through the process.