Smart Answers: Finder Seeking
Q: I may enter a contract with a finder. I need $2.5 million to expand my business. Afterward, I project my company will be valued around $7.5 million to $10 million, with an annual net income of $2.5 million within the next four to seven years. The finder wants 5% of the cash deal plus a 5% equity position. Is this fair? — Scott, via e-mail
A: It may well be. Finders are intermediaries that help business owners locate investors. Robert Chalfin, CEO of the Chalfin Group, a mergers-and-acquisitions advisory firm in Metuchen, N.J., says their fees generally run between 3% and 10% of the total amount of money raised, depending on how difficult the deal is and whether the finder provides additional services such as drafting a selling memo. It is not unusual for a portion of that fee to come, as your finder is suggesting, in the form of equity.
But before you sign up with any finder, you will need to do some homework. Finders are often consultants who also offer advice on developing a business plan or strategic planning. But if they are not also registered broker-dealers—and most independent operators are not—there are limits to what they can do. For example, unregistered finders are not permitted to negotiate on your behalf under U.S. securities laws. So find out if the finder you are considering has such a license and check references. Then ask an attorney to review the services the finder is proposing to provide to be sure they are within the legal limits.
Your attorney also should approve your contract with the finder before you sign. Matt Storms, a partner in the Madison (Wis.) office of law firm Michael Best & Friedrich, says most contracts run anywhere from six months to two years. But read carefully: Some finders will tack on a provision that if a deal gets done within some fixed period beyond that date, even one that involves investors with whom the finder never spoke, the finder will still get paid. "Companies are often so focused on needing money that they ignore the boilerplate [language in the contract]," says Storms. "And that is pretty important."
Q: A lot has been written about the need for companies to have a blog. How important is that now? — Roshan Hoover, Saskatoon, Canada
A: Very. A blog can establish your expertise and credibility with potential clients, increase your company's visibility on search engines, and provide good leads for your sales team. Andy Wibbels, a Chicago-based blogging consultant, says blogs are a great way for small business owners to build a more personal connection with their clients and for new customers to find them. Says Wibbels: "Nobody looks at the yellow pages anymore."
You can establish a blog for a few bucks a month—or less—by signing up on sites such as WordPress.com and TypePad.com. If you already have a Web site, those services can set up your new blog so it is linked to your home page.
Still, Rich Brooks, president of flyte new media, a Web design and Internet marketing company in Portland, Me., warns that a poorly written blog can backfire. If writing isn't your thing, ask a wordsmith on your team to drum up the posts. Or enlist several employees to take turns writing entries. Don't forget that you can add photos to a blog as well, so if you are a catering company, for example, you can show off your food and your friendly staff.
Also keep in mind that you may need to devote a good bit of time to the blog—posts should go up several times a week. And you should read other important blogs in your industry, adding a comment when you have something insightful to say. It might raise your profile and encourage people to check out your own blog. But be prepared: Not everything that people write on your blog or their own about your company will be positive. If you can't take the criticism, you may be better off skipping the blogging party.
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