Raising Finance Negotiating

PRESENTATION

A What are the advantages and disadvantages for a private individual of

borrowing money from these sources?

1 a bank 4 a member of your family

2 a friend or colleague 5 a pawnbroker
3 a loan shark 6 a credit-card company

In what situations might someone use the sources of finance mentioned in

Exercise A?

What do you think these sayings mean? Do you agree with them?

1 Money talks. 5 Lend your money and lose a friend.

2 Don't put all your eggs in one basket. 6 Out of debt, out of danger.
3 You have to speculate to accumulate.
7 He who pays the piper calls the tune.
4 Don't throw good money after bad.
8 Beggars can't be choosers.
VOCABULARY

A Choose the correct word to complete each sentence.

1 Customers not paying on time often leads to ............ problems.

a) cashflow b) equity c) asset

2 Our state-of-the art machinery is our major ............ .

b) possessionb) asset c) equity

3 The ............ rate on the loan was 12%.

a) fee b) charge c) interest

4 They could not pay their debts and faced ............ .

a) bankruptcy b) warranty c) overpayment

5 The company has gone into ............ with debts of about £20 million.

a) indemnity b) investment c) administration

6 The finance a company raises from issuing shares rather than taking out loans is
known as ............ capital.
VOCABULARY

7 The ............ is the original amount of a loan not including any interest charged.

a)instalment b) principal c) subsidy

8 A/An ............ is a particular type of loan for the purchase of property.

a)credit b) overdraft c) mortgage

9 If a company defaults on a loan, it means they miss a/an ............ .

a)budget b) instalment c) collateral

10 Money lent to start-up businesses is known as risk or ............ capital.

a)share b) venture c) working
VOCABULARY

1 Being in the red / black means you are in credit.

2 A loan /grant is money which doesn't need to be repaid.
3 A creditor / debtor owes money.
4 An interest /A dividend payment is part of a profit paid to shareholders.
5 Assets / Liabilities are the total amounts of money owed by a business.
6 An overdraft / A return is the amount of profit made on an investment.
7 To go into liquidation / debt is when a company stops operating because of financial
difficulties.
8 A deposit/Collateral is security for a loan in the form of assets which could be sold if
the debt is unpaid.
A Discuss these statements.

1 Leasing machinery, vehicles, etc. makes more financial sense than buying them.
2 There should be more controls on access to credit.
3 Expanding fast means going into debt.
4 Declaring bankruptcy is a useful tool for clearing debts and starting again.
5 It is good practice to pay suppliers as late as possible and maximise any credit terms.
6 A successful business shouldn't need to raise a lot of finance.

B Work in small groups. Check that you know the meanings of these terms. What are
the advantages and disadvantages of securing finance from each?

1 business angels 4 debt fundraising

2 bank finance
5 venture capital funds
3 equity finance
Negotiating with Financers Negotiating
NEGOTIATING STRATEGY
In his book The Art of Winning, Harry Mills says that most negotiations have seven stages.
These are listed below, but in the wrong order. Put the stages in order. What word do the
initial letters of the stages spell?

Tie up loose ends

Confirm what has been agreed. Summarise the details on paper.
Explore each other's needs
Build rapport. State your opening position. learn the other side's position.
Ready yourself
Prepare your objectives, concessions and strategy. Gather information about the other side.
Probe with proposals
Make suggestions and find areas of agreement.
Close the deal
Bring the negotiation to a clear and satisfactory end.
Signal for movement
Signal that you are prepared to move from your original position. Respond to signals
from the other side.
Exchange concessions
Give the other side something in return for something you need or want.
NEGOTIATING STRATEGY
In his book The Art of Winning, Harry Mills says that most negotiations have seven stages.
These are listed below, but in the wrong order. Put the stages in order. What word do the
initial letters of the stages spell?

Tie up loose ends

Confirm what has been agreed. Summarise the details on paper.
Explore each other's needs
Build rapport. State your opening position. learn the other side's position.
Ready yourself
Prepare your objectives, concessions and strategy. Gather information about the other side.
Probe with proposals
Make suggestions and find areas of agreement.
Close the deal R.E.S.P.E.C.T.
Bring the negotiation to a clear and satisfactory end.
Signal for movement
Signal that you are prepared to move from your original position. Respond to signals
from the other side.
Exchange concessions
Give the other side something in return for something you need or want.
NEGOTIATING LANGUAGE
REFUSING AN OFFER CHECKING UNDERSTANDING
STARTING POSITIONS
I'm not sure about that. What do you mean?
We'd like to propose ….
That's more than we Have I got this right?
Right, we feel that
….would be ideal to …. usually offer. If I understand you
That would be difficult correctly, ...
for us. You mean, if we agreed ... ,
EXPLORING would ...?
POSITIONS
ACCEPTING AN OFFER Are you saying ...?
Can you tell me a little
about ...? Sounds like a good idea to
me. As long as we ... CLOSING THE DEAL
What did you have in
mind? Good, we agree on price, I think we've covered
term, discounts ... everything.
Great! We've got a deal.
MAKING OFFERS AND
CONCESSIONS PLAYING FOR TIME
I'd like to think about it. FOLLOWING UP THE DEAL
If you order now, …we'll
I'll have to consult my Let me know if there are
give you a discount.
colleagues about that. any problems.
We'd be prepared to…
If there are any other
offer you a better price if
points, I'll e-mail you.
you increased your order.
PRACTICE

Keep in mind that you can probe using questions like “What if…” or “Supposing…”, “Providing/provided
that...

PROBING WITH PROPOSALS

How about (-ing)…? Are you willing to consider….?
Perhaps we could …? Is it feasible to…?

BARGAINING CHECKING SIGNALLING

If you increase your UNDERSTANDING I'd like to make a
order, we'll give you a Sorry, could you repeat suggestion.
bigger discount. that?
I think we should leave
We can deliver by that Are you saying you this point and come back
date, providing we don't have that data to it later.
have the goods in with you?
stock. I want to ask a
So what you're saying question. How long are
If we lowered the rate, is you'll ... we going to have to
would you be prepared repay this?
to increase your order?
NEGOTIATING

A Which of these negotiating tips do you agree with? Why? I Why not?

1 In the early stages, you need to ask the other side a lot of questions.
2 Always interrupt if you don't understand something.
3 Never make a concession for free. Always get something in return.
4 Use simple, direct language and be open about your aims.
5 Signal what you are going to do. For example, say,
'I'd just like to clarify that.'
6 Summarise often so that everyone is clear when you
reach agreement.
7 Adapt your language so that you don't appear aggressive.
8 Talk about your emotions and how you are feeling.

B Listen to five expressions and match each one to the correct technique above.
NEGOTIATING
a) Can you offer any
A Which of these negotiating tips do you agree with? Why? I Why collateral?
not?
b) There seems to be
something wrong with
1 In the early stages, you need to ask the other side a lot of questions.
your figures.
2 Always interrupt if you don't understand something. c) Let's go over what we’ve
3 Never make a concession for free. Always get something in return.
agreed.
4 Use simple, direct language and be open about your aims.
d) What sort of loan are
5 Signal what you are going to do. For example, you
say,looking for?
'I'd just like to clarify that.' e) Let me clarify my last
point. What I meant was,
6 Summarise often so that everyone is clear when you
reach agreement.
we would want to retain
7 Adapt your language so that you don't appear aggressive.
control of the business.
8 Talk about your emotions and how you are feeling.

B Listen to five expressions and match each one to the correct technique above.
NEGOTIATING

C Listen to the dialogue and complete these expressions. Then place each
expression under the correct heading in the Useful language box below.

1 Could I ask you, what other people are ............ ............ for
you?
2 Have you ............ any other bank, if I may ask?
3 I'd like to make a ............. Why don't you revise your business
plan?
4 Good. Could I ask what sort of ............ ............ you have in
mind?

5 ............ . ........... ...... ...... what the money's for. The 250,000

would be for working capital ...

We seem to be getting somewhere now. Let
me ............ ............ what we've agreed so far ...
NEGOTIATING

Banker: I've looked at your business plan and I like some of your ideas for expanding your
business. Could I ask you, what other people are providing finance for you?
Client: Well, two family members have offered 100,000 euros for a small stake in the
business. I haven't decided anything yet, and my partner is also investing some more
money. We're still discussing the exact amount.
Banker: Have you approached any other bank, if l may ask?
Client: Yes, two banks, but they turned me down.
Banker: Oh, sorry to hear that - these are diflicult times to raise money. I'd like to make a
suggestion. Why don't you revise your business plan? And especially, put in a bit more
about your competitors, for example. That'd help.
Client: Certainly, l can do that.
Banker: Good. Could l ask what sort of repayment terms you have in mind?
Client: I'm pretty sure we could repay a loan - the whole amount, that is - within three years.
Banker: Right. That might be a bit optimistic, I'd say. Anyway, suppose we were to offer you a
loan of, say, 250,000 euros, once you've revised your business plan? How would you
feel about that?
Client: Let me clarify what the money's for. The 250,000 would be for working capital, and to
hire more staff a finance director, marketing people, money for the extension of the
factory ...
Banker: Well, we can talk about that a little later. Your first task is to strengthen the management
as we discussed earlier.
Client: OK. Well, in that case, 250,000 would certainly help me to achieve some of my
objectives in expanding the business.
Banker: Good. We seem to be getting somewhere now. Let me sum up what we've agreed so
far, then we can talk about your marketing strategy.
NEGOTIATING
OPEN QUESTIONS
Why do you need a loan?
What other sources of
finance do you have?
What did you have in
mind?
SIGNALLING PHRASES
I'd like to make a proposal.
I think we should ...
Could I make a
suggestion: why don't
we ... ?
Let's look at this
another way.
CLOSED QUESTIONS SOFTENING PHRASES
Do you have any other I'm sorry, we can't go that
backers? high.
Can you transfer the We were hoping to pay a
money by next week? little less.
Could you improve your That seems very
credit terms? expensive
SUMMARISING
Let's see what we've got
so far.
Let's recap before we
go on to ...
So, to sum up, ...
Raising Objections and Putting at Ease

Supplier: So, do we have a deal?

Customer: I still have a few issues.
Supplier: Sure, let’s hear them.
Customer: First, I’m concerned about the business plan of your
new subsidiary. It may not be realistic.
Supplier: Let me reassure you that the new business is going to
be very successful. My new partner has experience with
this very same industry in other countries.
Customer: Perhaps, but I’m also worried that this market is more
challenging, especially in the current economic
downturn.
Supplier: I can promise you that we will have the same
amount of success as our other partner firms. We have
done the research.
Customer: OK, but I’m still a little apprehensive about lending
such a large amount. Your cash flow could be a problem.
Supplier: I have no doubts that we will be able to make the
payments without any trouble. We have a strong plan.
Raising Objections and Giving Reassurance
Raising Concerns:
I’m concerned about …
I’m worried about …
I’m still a little apprehensive about …

Giving Reassurance:
Let me reassure you that …
I can promise you that …
I have no doubts that …
NEGOTIATING

A Work in pairs. Role-play this situation.

The ownership of a small cloud services company, meets a business angel to get additional
investment to develop its business. The business owner has already raised €200,000 through
other investors, and in return has given that person a 5% stake in the business.

Student A
You are the business owner. You want to: In return, you expect to:

• offer the angel a 25% stake in the business.

• get an equity investment of €800,000 to
give the angel a seat on your board of
extend the range of your products and
directors, with voting rights.
enter a new overseas market - France or
• offer the angel a 10% share in the profits of
Germany.
• any future business development.
keep a shareholding of at least 50% so
that you continue to own and control your
business. Negotiate a good deal
• get management advice from the angel for your business.
when necessary.
• keep control over recruiting senior
managers.
NEGOTIATING
Student B
You are the business angel.
You want to:
• invest €1 million of equity capital
in the cloud computing business.
• help to expand the business in
Europe and the United States.
• provide excellent contacts with
clients in France and Germany.
• put the owner in touch with other
potential investors in the
business.
• encourage the company to grow
the business internationally.
Negotiate a good deal for yourself.
In return, you expect to:
• have a 55% stake in the
business.
• be offered a seat on the
board of directors, with voting
rights.
• have a 30% share in the
profits of any future business
development.
• advise on future recruitment of
senior managers as the
business expands.
REVIEW
ACCOUNTING CONSIDERATIONS
The CFO of a European corporation is talking about differences in accounting
practices in other countries. Listen and match each comment he makes with
a point from his list. (The first one has been done for you.)
If we are thinking about raising capital in overseas markets, the reporting requirements
of those markets are obviously important. I've summarized some of the major points on
this slide - let's go through them briefly.
ACCOUNTING CONSIDERATIONS
1 It may be possible to measure all of these at the fair value,
which would allow the recognition of unrealized gains.
2 This may have been developed completely separately from
the accounting systems, and may provide considerable
opportunities for taxation planning.
3 Typical of these is the Profit and Loss Account.
4 This can be acquired or self-generated - of course it may have to be
recognized as an asset, if certain criteria are met.
5 Here we're talking about things which we don't actually own - they go back to
their owners after a certain amount of time. They require different disclosure in
the Balance Sheet, and the GAAP of different countries can require different
classification, normally finance or operating.
6 The methods used to measure this can vary considerably. The normal
ones are FIFO, which means 'first in first out', LIFO or 'last in first out', or
average cost, which is somewhere between the two. All give a different
value for what we hold .
ACCOUNTING CONSIDERATIONS
ACCOUNTING CONSIDERATIONS

Anne So, can we agree at least that it will be most cost effective to invest in an
existing business? That way, we will be able to utilize the local knowledge
of the personnel currently running the business.
Luis Yeah, I think so. The question is how exactly. Do we buy the company or
only the assets? There's a lot to think about. For instance, the due
diligence process, although that won't affect the mechanics of our
acquisition . What will we have to consider, Allen? You're the international
lawyer.
Allen Lots of things, takeover rules, European Union regulation on competition
and the accounting legislation. Dana, can you tell us something about
that?
Dana Actually, the accounting regulations aren't such a big issue. More
important will be the effect of our acquisition on our balance sheet. The
goodwill component is huge and we have to be aware of the impact this
is going to have. That'll be an interesting discussion with the auditors.
ACCOUNTING CONSIDERATIONS