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Advisors, Private Equity

Building a Dedicated BD Budget

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Dedicated business development efforts have become a source of competitive advantage for the deal community. The specific makeup of your strategy will vary depending on the structure, size, and focus of your firm. No matter your approach, business development is inevitably an always-on operation. Though it may take a back seat while you’re working on a deal, completely deprioritizing it during a deal push means no warm leads once that deal closes — or worse yet, once it falls apart. With sellers’ valuation expectations through the roof, and all the ordinary perils of dealmaking well intact, that’s not a risk any investor should be taking.

Every business development strategy needs a budget to identify where to allocate resources and how to drive efficiencies. For a firm with more limited resources, a budget will be the key for identifying where to allocate resources and drive efficiencies.

Many firms today spend capital on a variety of business development activities, but don’t classify them all as such. Instead, BD activities appear under a number of different line items — e.g., conferences, events, marketing, advertising, salaries, etc. — and so the total amount of capital spend on deal sourcing each year isn’t fully realized.

To start building a dedicated BD budget, first examine your firm’s current total budget and identify where capital has been allocated to business development related activities in the past. This includes any activity or resource dedicated to finding deals.

The first expense to include — and one that many firms overlook — is any professional whose time is wholly or partially devoted to deal sourcing. Keep in mind that even if your firm doesn’t have a dedicated business development professional, you can account for the percentage of time that each team member spends on sourcing.

Other relevant expenses include:

  • Marketing
  • Websites
  • Online BD tools and deal sourcing networks
  • Hotel booking
  • Air travel
  • Dinners
  • Sponsorships
  • Trade Shows

Firms often think about deal sourcing as binary. They focus on driving returns, doing anything they can to close a relevant deal, rather than focusing on the capital spend to do so. However, once a firm is aware of how much capital is actually being spent on business development activities, the goal is to identify new strategies that maximize that spend, not detract from it.

Budgets are often thought about in annual terms. But deal sourcing is a long-term activity. As such, keep in mind that the goal of BD is to increase your deal sourcing capacity over time. This may require more upfront investment, but will then level out over time.

It is important to have realistic expectations and understand that your efforts will likely pay dividends for years to come — even if a closed deal doesn’t immediately result from your efforts. In the short term, identify the resources that you can realistically allocate to business development over a given year to help determine where to focus your time and which business development activities will be most effective for your firm.

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