buying a Business

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Understanding Deal Flow and Business Purchase Contracts

posted by: Scott Hislop
Jun 30, 2017 9:18:00 AM

In the world of business acquisition, there are many mystery terms that you may not be familiar with right off the bat. But with just a little reading, you can be well informed on one of the most important concepts in business purchases and financial lending: the “deal flow”.

What is Deal Flow?

Deal flow is defined as the rate at which professionals in the finance industry receive business propositions or investment offers. The deal flow doesn’t consist of singular entities or propositions, but rather, it refers to the steady stream of offers and opportunities that become available to a venture capital firm. As you enter theUnderstanding Deal Flow and Business Purchase Contracts world of business acquisition, you’ll notice a select group of finance professionals using this term, including:

  • Venture capitalists
  • Angel investors
  • Private equity investors
  • Investment bankers

A “good” deal flow is defined as one that generates the amount of revenue, or equity-generating opportunities, required to keep a company performing at its highest capacity.

 

How Deal Flow Works

During the span of a month, many large venture capital firms, which are a type of finance provider for upcoming, small businesses with high potential for growth, receive hundreds of business plans and investment offers. These business plans can be submitted through references, so networking within the right professional circles is of the utmost importance.

By creating meaningful connections with finance professionals in your desired industry, you’ll increase your probability of developing funding or increasing the probability that your business will be eligible for funding. Attend conferences and venture fairs to expand your professional network, and present business plans and ideas.

 

Contracts Associated with Purchasing a Business

When you’re in the market to acquire a business, as either a venture capitalist or a successful entrepreneur, you’ll have to deal with a bundle of varying contracts throughout the purchase process. Some examples of common business purchase contracts include:

  • Asset Purchase Contracts
  • Share Purchases
  • Consent Contracts
  • Assigning Agreements
  • General Terms & Conditions

To best review these contracts and their terms, assemble a team of business professionals, including a lawyer, accountant, and the existing business owners. The best-practice method to effectively communicate any issues or concerns with one another is to gather all members of both parties while the contract development process is taking place.

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