One way to grow is the acquisition of a company or activity that complements the acquiring company's activities in order to create synergy. To do this, a valuation has to be made of the acquired activity , with regard to the acquirer's activities and taking into account the expected synergies on one side and the business risks involved with the merger on the other. A central theme in purchasing activity is conducting negotiations with sellers that are usually "in love" with the activity for sale , and of course finding a solution to financing such a deal.
When a large body approaches the company for its acquisition , it should be determined in the first stage whether it is a sale transaction or merger of activity into the acquiring company , and accordingly to conduct the negotiations from the outset. In a merger transaction, the value of the transaction is derived from the value of the acquired company and the value of the acquiring company. Particular importance is to be given to safeguarding the rights of the owner of the merging company. The owner of the merging company has the responsibility of examining the acquiring company and especially the post-merger company.
Construction of a new plant or relocating an existing plant is an event that happens only once or twice in the company’s life. Due to the size of the investment, it is desirable to find a site where there is an inherent economic or tax benefit. The business plan anticipated from the move must be translated into a multi-year cash flow. Negotiations with the banks will lead to an agreement that contains, among other things, financial criteria. The basis for the entire future move lies in tight monitoring of the construction phase , in order to identify any trend of deviation from the plan at the earliest stage. Sometimes, financing is received only from banks with which the company does not work prior to the move.
Employee compensation programs are an effective tool for improving the performance of the company , but only if the employee succeeds in linking his performance with the compensation. Employees need to know exactly what they have to do to earn the compensation , as well as how much it is. It is recommended to include a specific component in the model for rewarding teamwork. A quality remuneration model will move the employees to action and keep them constantly alert regarding their periodic goals.
At the end of each year of activity, the company has to prepare and approve a budget for the next year’s activities. The budget reflects the priorities of company management and allows for monitoring and control of performance of targets. When a company is at the beginning of a new period that is different from the past, for example before relocation of a plant , a significant reduction is expected in existing activities. When entering into new fields, it is essential to prepare a multi-year budget. A multi-year budget allows for making management decisions from the perspective of 3-5 years ahead, not just for the coming year , and for preparing in advance a number of possible scenarios.
One of the most important sources of funding the company is supplier credit. A one-time increase in this funding source can be employed when necessary, in those cases where obtaining bank credit is not possible , either for the amount required or according to the schedule. Such cases can include a large bad debt, an investment of a size exceeded what was planned, damage due to force majeure such as war or a strike. In this situation, company management is required to make a clear financial program about how it can apply for additional credit from its significant suppliers. Based on this program, large suppliers are approached to formulate an agreed plan for the extension of existing credit and agreement on future terms of credit.
Provision of bank credit to finance a major investment, such as construction of a plant, will be formalized in many cases in a specific financing agreement , which is separate from existing terms of credit and credit facilities for ongoing operations. The agreement will include a statement of sources and uses of funds to finance the investment, formal liabilities such as performing an appraisal , and preparing regular reports for the bank by a monitoring function on its behalf, the terms of extension and cost of credit and financial covenants. The financing agreement is binding on the company and imposes on it a series of restrictions, but on the other hand , provides it with defense and protection in a situation where significant changes occur in investment activities or in the decision-making parties in the lending bank.
Many projects combine financial investment with yield-generating activities, such as construction and leasing of a logistics structure. Repayment periods for such projects range from eight to ten years. Planning the repayment period takes into account both financial parameters such as occupancy rates, leasing rates, and expected interest rates , and regulatory parameters such as the corporate tax rate. On the basis of a multi-year business plan, a cash flow is generated that includes repayment of a loan received to finance construction.
When a company reaches a point where it is unable to service its debts to third parties, it may enter into a procedure known as "Chapter 11 ". Part of this process includes obtaining protection from creditors and from execution procedures, in order to maximize at the end of the process the payment of debts to creditors. As part of these proceedings, a trustee is appointed that in effect becomes the actual manager of the company. The trustee is the "beating heart" in the Chapter 11 process, and enjoys the protection of the court. The trustee is subject to fiduciary duties and duties of care, both to the court and to third parties. The court sets out a clear framework of instructions for the trustee, and the trustee is to carry out only those actions that the court expressly authorized him to do. The process ends in an arrangement with creditors formulated by the trustee that is subject to agreement by the court.
A business in the various fields of consulting is usually based on the founder of the business and professional employees. It is very difficult to realize such a business for a third party and the process required is transferring it to one of the longest serving employees in the retirement/ sale agreement of the founder. For this purpose, the preparation of a business plan is required, a fundamental valuation, and an outline plan for the transfer of ownership subject to milestones and targets.