Financial Negotiations
Financial negotiations for a small business involve discussions and agreements that impact the company’s financial health and survival. Negotiations can have many goals including securing funding (financing and investments,) forming partnerships, purchasing assets, selling the business, or even developing the terms for proposals and sales contracts.
For a small business, to sustain its position or grow, loans may have to be negotiated with a bank or other financial institution, or investments may have to be sought from venture capitalists, angel investors, equity markets, or crowdfunding platforms. Additionally, the small business may negotiate the terms of grants from government or private institutions.
Financial negotiations will be required if a small business considers forming joint ventures with other businesses sharing resources and expertise. Valuation of the business will be required if it may consider merging with another business to achieve strategic goals. Alternatively, the business may consider selling itself so that, again, price and terms will have to be determined. Still, it may form alliances and negotiate favourable terms with its suppliers to ensure a supply of goods at a reasonable cost or it may establish agreements with retailers to expand its market reach. And on a related matter, it must establish service agreements, i.e., terms for providing services to customers whilst setting prices, payment terms, and delivery conditions for its products.
Financial negotiations would be required if the business considers purchasing or leasing properties for business operations or if it must buy or lease equipment and machinery.
[12 Financial Negotiations: https://youtu.be/dSXG5rtjkik]
Role of the Accountant
Accountants are critical in financial negotiations for a small business. To be prepared for the task, directly, the accountant must analyse and understand the business’s financial statements (he/she must understand the financial ratios,) and forecast, he/she must prepare a valuation of the enterprise and must prepare financial statements and other documentation for the business. He/she must conduct scenario and sensitivity analyses. They must collect and collate the major assumptions regarding the business for a given period or as an ongoing concern. He/she must be prepared to give strategic advice on financial matters to business owners. Indirectly, to further understand the business, the accountant must be engaged in preparing budgets and management of costs. Still, to the indirect end, to understand the business exposure to tax liabilities, they must engage in tax planning and develop tax strategies to minimize tax obligations, and they must ensure the firm’s compliance with tax laws thereby gaining an advantageous understanding of the business. Further, accountants must understand the financial risks facing the business, so, they must identify financial risks and participate in developing strategies to mitigate them.
Tools & Techniques
Accountants have access to a variety of tools and techniques that can aid them in financial negotiations. Chief among them are financial analysis tools, valuation tools, e.g., discounted cash flows (DCF,) proposal preparation tools, risk management tools, and communication and documentation. These tools improve the chances that negotiations are based on solid financial information.
[Top 4 Ways to Value a Business | What is Your Business Worth? https://youtu.be/cu6UX2o4oo0]
Financial analysis tools include balance sheets, income statements, and cash flow statements, ratio analysis techniques, like liquidity ratios, profitability ratios, and solvency ratios. Financial analysis tools also include benchmarking, a comparison of the business financial metrics with industry standards or competitors to identify strengths and weaknesses, and common size statements whereby financial statements are expressed as a percentage of a base figure (e.g., total assets or sales) to facilitate comparison and analysis.
Proposal preparation tools consist of business plans, valuation reports, i.e., a professional assessment of the business’s worth, and market analysis that indicate market conditions, trends, and the competitive landscape that support negotiation strategies.
Risk management tools include sensitivity analysis, scenario analysis, and risk assessment templates. Sensitivity analysis evaluates key variables’ impact on financial outcomes. Scenario analysis assesses the impact of different future scenarios on the business’s financial health. Then there are standardized risk assessment templates, such as a risk matrix/register.
[Sensitivity Analysis: https://youtu.be/56-iiZEjqnU]
Communication and documentation tools include common productivity software such as presentation software, e.g. PowerPoint, to create compelling presentations for stakeholders; document management systems for organizing and sharing documents, such as Google Drive or SharePoint; and email and communications platforms like Microsoft Outlook.
Conclusion
Financial negotiations are essential for managing a small business, demanding thorough preparation, strategic thinking, and adept communication skills. Accountants play a pivotal role in these negotiations, whether it’s securing loans, negotiating with creditors, or facilitating mergers and acquisitions. They represent the business’s financial interests, meticulously prepare the necessary documentation, and leverage their expertise to negotiate favourable terms. By bringing financial acumen and insights to the table, accountants ensure that small businesses make well-informed decisions during financial negotiations. These tools enable accountants to prepare comprehensively, present their cases effectively, and confidently navigate the complexities of financial negotiations.
Other Resources
Secrets to Quick Business Negotiations Find the Perfect Price in Minutes: https://www.youtube.com/shorts/S5h4guNB7vI?feature=share
Mastering Negotiations with Lenders: Proven Tips for Successful Financial Discussions! https://www.youtube.com/shorts/yFe6c_BVvMg?feature=share
Scenario and Sensitivity Analysis
Sensitivity analysis: https://youtu.be/o6-HCOG1Cp4
Sensitivity Analysis – Microsoft Excel: https://youtu.be/N924D6tGOG8
Sensitivity and Scenario Analysis Model: https://youtu.be/nJAJhKeiLdc
Scenario Analysis in Excel: Financial Modeling: https://youtu.be/UsbVUOnBy3Y
Scenario analysis: Defined: https://youtu.be/kz1PSpFlEjs
What is “scenario analysis” & why is it the “heart of risk management”? By Brian Barnie: https://youtu.be/PxHh1ZDPHJo
Business Valuation
Valuation Methods: https://youtu.be/cVWpVKvX0BQ
Mergers and Acquisitions
Mergers and Acquisitions Explained: A Crash Course on M&A: https://youtu.be/WBHzCDgEtVQ
What are Mergers and Acquisitions (M&A)? Types, Form of integration: https://youtu.be/gup4KmPirLQ
Joint Ventures and Alliances
IAS 28 Investments in Associates and Joint Ventures – applies in 2024: https://youtu.be/Krc3jlO-kZI
Accounting for Joint Ventures – Part 1: https://youtu.be/2KKB7Y1ksIc
Equity Markets
Equity Market: What It Is, How It Works, Types, and Examples: https://www.investopedia.com/terms/e/equitymarket.asp
