Take Five #112: A 9-point inventory due diligence process to find flaws that could sink a deal, and more
Codely v2.0 public release is here
Lorem ipsum dolor sit amet, consectetur adipiscing elit lobortis arcu enim urna adipiscing praesent velit viverra sit semper lorem eu cursus vel hendrerit elementum morbi curabitur etiam nibh justo, lorem aliquet donec sed sit mi dignissim at ante massa mattis.
- Neque sodales ut etiam sit amet nisl purus non tellus orci ac auctor
- Adipiscing elit ut aliquam purus sit amet viverra suspendisse potent i
- Mauris commodo quis imperdiet massa tincidunt nunc pulvinar
- Adipiscing elit ut aliquam purus sit amet viverra suspendisse potenti
What has changed in our latest release?
Vitae congue eu consequat ac felis placerat vestibulum lectus mauris ultrices cursus sit amet dictum sit amet justo donec enim diam porttitor lacus luctus accumsan tortor posuere praesent tristique magna sit amet purus gravida quis blandit turpis.
All new features available for all public channel users
At risus viverra adipiscing at in tellus integer feugiat nisl pretium fusce id velit ut tortor sagittis orci a scelerisque purus semper eget at lectus urna duis convallis. porta nibh venenatis cras sed felis eget neque laoreet suspendisse interdum consectetur libero id faucibus nisl donec pretium vulputate sapien nec sagittis aliquam nunc lobortis mattis aliquam faucibus purus in.
- Neque sodales ut etiam sit amet nisl purus non tellus orci ac auctor
- Adipiscing elit ut aliquam purus sit amet viverra suspendisse potenti
- Mauris commodo quis imperdiet massa tincidunt nunc pulvinar
- Adipiscing elit ut aliquam purus sit amet viverra suspendisse potenti
Coding collaboration with over 200 users at once
Nisi quis eleifend quam adipiscing vitae aliquet bibendum enim facilisis gravida neque. Velit euismod in pellentesque massa placerat volutpat lacus laoreet non curabitur gravida odio aenean sed adipiscing diam donec adipiscing tristique risus. amet est placerat in egestas erat imperdiet sed euismod nisi.
“Nisi quis eleifend quam adipiscing vitae aliquet bibendum enim facilisis gravida neque velit euismod in pellentesque massa placerat”
Real-time code save every 0.1 seconds
Eget lorem dolor sed viverra ipsum nunc aliquet bibendum felis donec et odio pellentesque diam volutpat commodo sed egestas aliquam sem fringilla ut morbi tincidunt augue interdum velit euismod eu tincidunt tortor aliquam nulla facilisi aenean sed adipiscing diam donec adipiscing ut lectus arcu bibendum at varius vel pharetra nibh venenatis cras sed felis eget dolor cosnectur drolo.
Subscribe to Take Five to get our top 5 quick weekly reads on the world of SMB, M&A, and EtA from the team at Kumo. Kumo aggregates hundreds of thousands of deals into one easy-to-use platform so that you can spend less time sourcing, and more time closing deals.
Take Five is created and sponsored by Kumo, a powerful deal aggregator to help supercharge your deal sourcing at withkumo.com.
What can you do with Kumo?
- Browse 120,000+ deals from hundreds of brokers and every major marketplace, with 700+ unique deals added daily.
- Save time and stop reviewing duplicate deals. Kumo matches identical deals across hundreds of sources so you can view unique business opportunities, even if they’re slightly different across different websites.
- Get a daily email for deals that match your search criteria
Take Five #112: A 9-point inventory due diligence process to find flaws that could sink a deal, and more
1. Is it better for businesses to hold cash or pay off debt?
Strengthening the balance sheet can come in two forms:
-Increasing the level of cash held on the balance sheet
-Reducing the level of debt on the balance sheet
Holding Cash vs Paying Down Debt
The choice between holding cash and paying down debt is one of flexibility vs cost. Cash is flexible, but holding cash has a cost.
You can always use that cash later to pay down debt if you want to. But once you’ve chosen to pay down debt, getting that cash back is harder. Unless it’s revolving debt, but that’s for another time.
So it’s a trade-off… but unlike most other cost of capital decisions, fortunately it’s simple to quantify.
You will earn interest on your cash at a rate (S) and pay interest on your debt of S + a spread (2% to 5% for good credits).
So ‘S’ nets off and you are left with the spread as the cost of holding cash vs paying down debt.
The extent to which you want to use debt in your business will depend on lots of things, but notably:
-Shareholder risk appetite/expectations
-Strategy and strength of investment opportunities
-Cost of current debt
-Cost of new debt
-Expected shifts in interest rates
-Lender appetite
-Liquidity requirements
-Leverage targets
-Collateral requirements
-Covenant expectations
We will run a separate series on raising debt and managing lenders in the future. For now, we will focus on the capital allocation considerations with debt and cash.
The key question here is when to prioritize debt reduction.
Find the rest of the CFO Secrets post here.
2. Thread details some of boring-business billionaire Brad Jacobs’ best advice after 500+ acquisitions
3. Top types of debt used to finance SMB purchases
Bank debt and mezzanine debt (or “mezz debt” for short) can be broadly compared on a spectrum of pricing (i.e. the rate of interest), risk tolerance, and flexibility.
Though bank debt tends to be the least expensive option, it also tends to be the least flexible, often with well-defined covenant packages, repayment schedules, reporting requirements, and approval processes.
Mezzanine debt, on the other hand, tends to be much more flexible, with fewer covenants, more flexible repayment schedules, and less onerous reporting requirements. However, in return for all of that flexibility, the rate of interest charged by mezz funds tends to be significantly higher, often 2-3x the rate of interest charged by a commercial bank. Mezz lenders often get introduced into processes when borrowers either:
1. Can’t get bank financing at all; or
2. Can’t raise their desired quantum of debt from a traditional lender alone; or
3. Require significant flexibility from their lenders on covenants or repayment schedules. For example, consider a company that’s planning to meaningfully decrease profitability in the first few years after acquisition to make necessary investments in growth
Below I attempt to summarize some of the major differences between these two common sources of debt capital.
Read Mineola Search Partners’ post here.
4. A 9-point inventory due diligence process to find flaws that could sink a deal
5. Why asset lists should be broad, not detailed in an asset deal acquisition structure
Loved what you read? Subscribe to Take Five to get our top quick reads every week from the team at Kumo. Kumo aggregates thousands of sources into one easy-to-use platform so that you can spend less time sourcing, and more time closing deals.
