M&A Playbook

Clients who deviate from the recommended funding strategy can severely jeopardize subsequent funding rounds and cause existing accounts to be locked. For instance, a client who secured $95,000 in revenue-based funding with a clear plan for an additional $300,000+ in 0% business credit cards and LOCs (Citizens, Chase) had their Bluevine account locked. This occurred because they used the funds for undisclosed tax and contractor payments and subsequently missed a Bluevine payment, highlighting the critical need for strict adherence to the funding plan and transparent communication.

Once a client confirms interest in a business acquisition and the due diligence process formally begins, comprehensive financial documentation is critically required from the seller. This standard package includes three years of historical balance sheets, three years of Profit & Loss (P&L) statements, and three years of Seller's Discretionary Earnings (SDE) statements. Additionally, up-to-date year-to-date information for all the above documents is crucial to accurately assess the business's current financial health, identify trends, and ensure a thorough and informed valuation.

In M&A and deal structuring, selecting a longer amortization period (e.g., 25 years) for debt can significantly improve the Debt Service Coverage Ratio (DSCR) and free up annual cash flow compared to shorter terms (e.g., 10 years). For example, a 25-year amortization may result in a 2.29x DSCR and $109,000 in annual debt service, versus a 10-year term with a 1.58x DSCR and $158,000. This $49,000 difference in freed cash flow is crucial because the objective is often not to hold the asset for the full amortization term, but to maximize liquidity for future strategic moves like refinancing, selling the business, or selling the underlying real estate, enhancing flexibility and investment options.