As a fitting conclusion of this three part series on how to put up ventures, in this article we will talk ?about deal (or venture, or project) packaging. Don't be intimidated or misled by the term "packaging" I myself when I was training to become an investment banker back in the 70s couldn't understand the meaning of that term. Why "package" a concept or idea, like a project or venture, or a deal, that had no substance in reality? How  can anybody shape or form an abstraction like "a deal" and put it inside a package? In fact, the term "package" is one of those words that investment bankers and deal makers love to bandy around because it makes them look sophisticated in matters relating to finance. In actuality it is nothing more than another gobbledygook that means "rearranging a set of assumptios about a ventrue or project so that those to whom it is offered would be enticed to put up money to fund it, or to join it as a partner or even as a highly paid employee whose reward comes as a result of doing it".

That's it, nothing more and nothing less. But the question comes up: if it is that simple, why do these folks bandy it around? Answer: Because raising money - which is the end all and be all of putting deals or projects together - requires that the deal or project or venture be structured in a way that incentives and makes sense to all those who are going to help in its execution. It is simply one more way of saying that if you don't structure or package a deal or project properly, you would most likely lose out to those who know how to do it. Every project, every venture, every deal is really out there competing for other peoples' resources be it time, money or knowledge. If you don't offer them a project that gives them value more than anybody else is offering them for their money, time and expertise, you will not be able to fund your deal. And if you can't you will soon lose employees, market share and eventually your own shirt. Or if you can't make your cherised project take off, fewer jobs will be created, and you will see a lot more poverty than you want to see. That in a nutshell is why the Philippines is so poor - because its deals and projects are not only uncompetitive to investors with money, but even deliberately made risky by those who are out simply to cut their own fee, their bribes, their kikils regardless of whether they help the poor. So there is nothing esoteric about these articles - if you don't learn them you just have to accept that you will live poor, and die poor, along with millions of others, Worse, those who do not know these arts almost always end up blowing their chances, by allying with crooks and politicians whose idea of making money is to put up projects which they intend to run down to the ground, another reason why people who do not like hard work and hard thinking are actually the number one reason why economies languish and their fellow citizens starve, not becaus some greedy businessman tries to keep them poor.

There is a more personal and selfish answer: if you know how to cut deals and offer them to those with money, you yourself can become wealthy. Trust me, I not only have seen it done over and over again, but with partners did it, just don't ask for evidence because as I keep saying, the reasons are far beyond explanation. Just observe this fact: nobody who has serious wealth earns it from salaries, or fees, or commissions, or least of all, form inheritance. Almost all of serious wealth is earned by putting up companies or ventures or doing deals and exiting from them ("do you know your exit strategy"?) profitably. This means that if you really want to help others not just by donating paiyakan moneys, do learn how to put up ventures seriously; better yet, how to exit from them before they start to lose value, as they all inevitably do. The guy who puts up a business and intends to die working is the real loser - because he fails to recognize the point when there is no more value to be created unless he takes his venture to another level of risk. People who fall in love with their projects, or investments, are almost always people who don't realize the rewards for taking risks and helping others.

So in this article, here is what we will do: I will assign you a deal or project, complete with financial projections, so you don't have to put it up from scratch. In fact that deal or project you already encountered in the past two articles (and is again attached here below). It is a generic project which shows how its operations and investment decisions make money for the proponents. Before doing anything, make sure you can gain a basic understanding of how the business makes money. Ask the help of those who know (not necessarily experts in accounting) because the art of deal making and packaging revolves around that idea. And while we're at this, let me disabuse you of the idea that you can't do this if you are not an accountant. I was educated as an engineer and economist, my only accounting education was 9 units in my MBA. All the accounting and finance I know came from self study, of course of a kind that far exceeds what is taught in accounting schools, but that is irrelevant to what you need to know so you can do this exercise. Here is what you do:

a). Examine how value is created in this proect (look for the cell that says Economic Value. Only a basic knowledge of math (and not even finance) is needed to know how this figure is arrived at. THAT IS THE VALUE THAT SERVES TO SCORE YOUR ABILITY TO PACKAGE A DEAL OR PROJECT, THE HIGHER IT IS THE MORE YOU HAVE CREATED VALUE (AT A RISK LEVEL). For now you have ot ignore some of the terms - Risk Premium, Average Cost of Capital, etc etc you will learn that later, just use the 12.08 % as the rate to discount the future cashflows.

b). Once you are comfortable with this concept of value creation, consider the question of how to package (or repackage) this deal since you came upon it before it has been implemented, by inputting the following assumptions into the model:

      i. You can raise the profit rate (operating profit (pre tax) from 8 % to 12 % by licensing a certain technology the specifics of which you need not know. Naturally such an operating improvement will require additional resources, and to simplify things, let us assume that there is a royalty fee of 1.5 % of the sales arising from the adoption of this technology, as well as the usual 40 % tax on incremental earnings before taxes. All these + and - effects will happen year in and year out throughout the entire life of the project of ten years. Also assume that this new technology does not require additional working capital.

     ii. You will also have to pay a one time upfront license fee of $ 10,000 (less the last three zeros to make it easier). You can either pay it in cash 100 % or you can propose instalment of 15 % down in year 0, balance of 85% over the next five years, equal amounts. Unpaid balances accrue interest at 8 %. Before you decide whether to adopt this technology right away, make a capital budgetting or capex analysis to show that the technology will pay its way. It is met when the Net Present Value of the project is positive.

    iii. If this is positive, you will design a financial plan (ie, package this deal or venture) in such way that you can maintain the same Economic Value or at least NOT MAKE IT WORSE. But how do you do the financial plna? Answer: Pretend that you are trying to convince lenders or partners to lend you money or invest equity in your venture (or, more likely a mix of both) so that your ending cash balance (check the cashflow portion) is no less than 10 % of the annual sales, or thereabouts (it is pointless to make a plan that makes the ending cash exactly equal to this minimum or ideal cash balance ratio to sales).

    iv. With that ending cash balance as a target ideal, and with the idea that the Economic Value you get by taking in various combinations of loan or equity, you will - after several attempts be able to come up with the mix that results in the same or even better Economic Value. THAT IS THE IDEAL FINANCIAL PACKAGE. You can now rest on your laurels for having packaged your first venture and that you are creating value for your partners and investors, not destroying it when you try to raise money from them. You are of course welcome to ask help from seasoned finance people and accountants, but believe me this is not all about accounting. It is about how to make money using ideas and relationships.

If you get this far, send me the results and I will send you a financial package that I myself did. This way you will learn the tricks and secrets of how deals are done (and money made for investors and proponents) in the real world. If you can do this, you have done somethign which not even Obama can do (or has ever done) in his make believe world of community organizing, where the results are measured in words and ideas, not money and jobs, which is why people like him do not really improve the world they find.

Warning: Even for those who know accounting, this can be a challenge, but not really. I did solve it in just over an hour, and most real deals or ventures I structure in less than half a day. (Now you will have an idea why my former students at NYU hated me for giving these kinds of homeworks and assignments, something that will teach them about the real world rather than pass exams). Believe me it is worth every second of it, you will see this if you are serious because I will offer you a deal you cannot refuse, if you show me that you are up to this task. But let us talk details if and when you deliver. You are always welcome to email me if you need to check certain concepts or even techniques.

Note: You will only be able to solve this problem by constructing a complete financial statement (from P&L to Cash flow to Balance Sheet) meaning you also have to do the supplementary schedules. You consolation is that you do this only once because you can always hire an accountant to do the job, but it will always be better if you learned the basics, that way you know what you are talking about, instead of using empty rhetoric.