According to John Bly, a managing member of LBA Haynes Standard, entrepreneurs should prepare their personal finances when facing mergers and acquisition opportunities.
To prepare for mergers and acquisitions if you are a small business owner, Bly suggests preparing enough reserves aside, putting yourself in a good credit position, and be ready to leverage your balance sheet.
“Your personal finances should be in order, make sure that you are ready for the transaction, that you have enough reserves, that you have enough capital, and that your bank supports you,” he told ANC’s “On The Money.”
Financial adviser Salve Duplito, meanwhile, advises entrepreneurs to “think cash.”
“Whether you are buying another business or being bought, being in a position where you either have your own cash or can easily raise it allows you to get more out of mergers and acquisitions,” she said.
Duplito said if you are being bought by another firm and your books clearly show them you are cash-strapped, you will be vulnerable.
“If you are an entrepreneur, conserve cash now and build your reserve funds more aggressively,” she said.
Duplito also suggests guarding your credit worthiness fiercely.
“This doesn’t mean don’t borrow, in fact, it means quite the opposite. Banks find it more palatable to lend to someone they know and have a good track record of payment,” she said.
Entrepreneurs should also know to how to determine the value of their business, or if you are buying a business, not to overpay.
According to Bly, when valuing a company, make sure you have the right advisers.
Choose advisers based on their capability, track record and credibility, not the size of their professional fee.
Bly explained that valuations are affected by continuous cash flow, recurring revenue and growth opportunity.
“The Philippine market is going to be hot in the next 10 years because of the growth opportunity. It’s a young population, it’s a growing population, and it’s education-based. The faster the opportunity for growth, the higher the valuation because as the buyer, you are buying future growth and future earnings,” he said.
Aside from numbers, Bly said entrepreneurs should also look out for other red flags in mergers and acquisitions, such as culture, bad accounting records, personnel files that are not up to date, and bad state of equipment.
source: www.abs-cbnnews.com
