The devil is in the details.
Without a doubt, the world of Business is a risky one in which anything can go wrong. Proper structuring and administration are key. Individuals with resources are bombarded with pitches seeking investments in the form of cash on a daily basis. Some investors put in less, but others may commit upwards of a million dollars into ideas that sound viable.
Financial losses to an investor may occur due to a multitude of factors including lack of due diligence, a weak business structure and even fraud. Often times, promises are made verbally. This is a huge problem when one is entrusting large amounts of money to others.
Reports about fraud, financial misrepresentation and mismanagement are ubiquitous on social media and in print.
In the best case, proper administration is essential to realise promised returns. Without it, an investor may not receive due returns on time if at all. In the case of a possible exit, the business venture cannot be sold without rightful paperwork.
There are huge potentials in business. But the devil is always in the details.
What Can Go Wrong When You Invest In A Business:
1. Disputes resulting from miscommunications/misrepresentation. Often from verbal representations and not documented representations.
2. Soured relationships causing stalled operations will throw wrenches into the works.
3. Litigation leading to
a COMPLETE LOSS of
for the INVESTOR
Accordingly, it is vital for business owners to safeguard their investments. There are ways to do it. An experienced Business Advisor(BA) is the most critical way. Risk can be mitigated in the following ways:
1. Having an experienced BA for his/her business acumen, to curate investment opportunities and spot red-flags. The BA voice out to challenge claims, and block a deal to defend his/her client's interests if necessary.
2. Correctly structuring the deal to safeguard the investor's interests and maximise potential gains. There are commonly used controls such as adopting convertible bonds or the usage of options to lower risk for the investor. These methods are very effective.
3. Ensuring that audit controls such as double signatories and random checks are set in place to prevent misrepresentation, fraud and more...
Scope of An Appointed Business Advisor
1. Attending negotiations with client, structuring business deals, etc. The BA can lead the discussion, in accordance to the client's concerns, interests and instructions to achieve a sensible deal for the investor.
2. Due diligence on Business Model, Projections, Accounting, Valuation & Human Resource.
3. Custodian for AUM. The other party has to convince the BA to receive funds. This directly reduces the odds of fraud or misrepresentations.
4. Monthly accounts and audit checks. Directly reduces misrepresentations and the probabilities of fraud.
5. Dispute resolution. To un-choke issues and ensure operation-flows.
Frequently Asked Questions
1. Why is there a need for a BA?
A BA is a safeguard for the investor's investment against misrepresentation and fraud. In the case of a home-run, the BA will work to ensure that the investor is paid.
The odds of an investment being lost due to the above reasons are greatly mitigated.
2. What can go wrong if I were to proceed without a BA?
Any multitude of mishaps may occur. In the worst cases, the investor may lose part or the entire investment.
Further, the investor may even find himself/herself embroiled in civil and even criminal lawsuits.
3. But I trust the other party. Is there really a need for a BA?
Any mishap can happen in the course of the business that can lead to a partial or full loss of the investment, even if the other party is a trust confidante. Having a professionally structured deal ensures that the relationship is intact even if things don't pan out according to plans.
In the event the business realises its potential, investment gains can be distributed in a fair, expeditious and transparent manner, ensuring the investor is properly compensated.
4. What are the costs involved in hiring a BA?
See here for details.
Official costs and disbursements are borne by the client. The full scope of work can be found here
5. How qualified is the BA?
Our BAs are practising venture capitalists or business mentors with a wealth of experience.
6. What is the timeline involved?
Depending on the nature and sophistication of the deal, our involvement may take anywhere from 3 to 9 months.
Letter of Appointment: < 1 week
Commencement of BA services: 3 - 9 months
Sale of Business Unit: Depending on investment tenure but is usually between 2 - 4 years.
7. I need the deal to be administered immediately. How?
Our advice is not to rush to commit as due diligence takes time. Nonetheless, please speak to us right away if it is urgent.