PPB July 2018

FEATURE | Raising Business Capital to support them,” says Koosed. “This can be a significant restraint on growth for distributors with capital requirements.” He adds that overseas sourcing also can require an infusion of cash. “Factories usually require a significant upfront deposit, and youmany need to pay the entire balance before seeing any revenue from your client. For bigger orders, this requires access to large amounts of capital.” Business capital takes a few forms, including traditional bank financing, independent investors, a private equity group, venture capital, and friends and family. Each type serves a specific need, and also comes with its own limitations or caveats. While small companies tend to rely heavily on capital provided by friends and family, Koosed says, “The issue here is that the pool of available capital is only as wide as your circle of benefactors, and it can get pretty expensive.” The next option, traditional lines of credit frombanks, often requires companies to be both large enough and profitable enough to be creditworthy, he says. Traditional bank financing, says Nicholson, often comes in the formof a secured loan that allows a company to borrow against the assets or cash flow of the business. “For more significant needs, business owners can sell a portion—or all— of their business to an outside party that can bring additional capital and resources to the table. This could be either a private equity group or independent investors.” The difference between venture capital and private equity, Isaacson says, is this: “Venture capital is early-stage capital. [Venture capitalists] are there to help a company start, and they can provide both cash and advice. Private equity companies invest in more mature companies. They might provide growth capital, liquidity for the owners; or both. We do not have much, if any, venture capital working in the industry, but there is a fair amount of private equity activity.” At Gemline, says Isaacson, they have a more traditional banking relationship which provides them with a revolving line of credit to fund the supplier’s working capital. “There are many different types of loan arrangements to meet the needs of different types of customers,” he says. “Two of the more typical types of loans Phil Koosed Co-founder and CEO BAMKO (A division of Superior Group of Companies) Culture is king. You can fix processes and streamline inefficiencies. It’s so difficult to fix a broken culture. Conversely, there’s an exponential impact that comes with the combination of two very strong, positive cultures. Make sure the cultural fit is there and that you’re comfortable with the culture you’re about to enter. There is no such thing as too much diligence about culture. If the right fit isn’t there, it will never work out. Jonathan Isaacson CEO Gemline Banks are businesses like we are. When there is a recession or things take a turn for the worse, banks will react in their own self-interest. No matter how much they like you personally, they have a job to do like you. It’s always good to be prepared for when things aren’t going so well. Part of managing debt is thinking about your own personal tolerance level. For some, having a ton of debt might be uncomfortable. What level of debt will allow you to sleep at night? David Nicholson President Leed’s (PCNA) When it comes to acquisitions, there will always be surprises, no matter how thorough your diligence process is. Acquisitions are very difficult to execute successfully—most companies overestimate the upside opportunities and miss many of the inherent risks. One of the most important steps we follow is to have a very well-developed integration and business plan for the acquired company for the first 12 months. This is completed as part of the acquisition process and helps to ensure alignment with all parties around what will happen on day one after the deal closes. What We Learned Industry leaders share lessons from the process of raising capital for business . PPB asked Phil Koosed, Jonathan Isaacson and David Nicholson what lessons they and their respective teams have learned about the process of raising capital for some of the industry’s most common business deals—mergers, expansions and acquisitions. Here’s what they said. 56 | JULY 2018 |