Every financing has two closing dates
The following is a guest post from Kenneth A. Rosen, partner at Ken Rosen Advisors PC. Opinions are the author’s own.
Every significant financing has two closing dates.
The first is the day the financing documents are signed. The second is the point at which lenders, suppliers, customers, investors, directors, employees and other stakeholders decide whether management is successfully executing the transaction.
The second date often arrives first.
Whether a company is refinancing existing debt, financing an acquisition, raising capital, negotiating a credit amendment or obtaining a new credit facility, there is a period between identifying a financing solution and completing it. The business continues operating, reporting deadlines approach and stakeholders continue making decisions that affect the company’s financial flexibility.
The financing may be progressing exactly as planned. Stakeholder confidence may not.
One recent refinancing that I encountered illustrates the point. After months of negotiations, the parties had agreed on most of the principal business terms, and management expected the transaction to close within weeks. Before that happened, however, the annual financial statements were scheduled to be issued.
Because the financing documents remained unsigned, the financial statements had to be prepared based on the circumstances existing at the issuance date, without treating the anticipated transaction as though it had already closed.
Nothing about the underlying business changed overnight. But the passage of time changed how others evaluated its future. Suppliers reviewed their exposure more carefully. Prospective financing sources expanded their diligence. Questions that had been manageable during private negotiations became more difficult once the company’s financial condition was reflected in its annual financial statements.
The financing challenge had not fundamentally changed. The confidence surrounding it had.
That distinction explains why every company undertaking a significant financing is managing two critical assets: cash and confidence. Cash appears on the balance sheet. Confidence does not. Yet confidence influences whether suppliers extend trade credit, customers make long-term commitments, lenders provide flexibility, investors commit capital and employees remain focused on the business.
Managing confidence is not about managing appearances. It means giving stakeholders objective reasons to remain confident while management completes the transaction. Confidence is earned through execution, not optimism.
That is why the CFO’s role extends well beyond negotiating financing terms or producing financial information.
Someone must manage the period before closing. That person ordinarily should be the CFO.
The clock starts before closing
Most CFOs understandably focus on cash forecasts, debt maturities, covenant compliance, financing alternatives and transaction economics. But another timetable is running simultaneously.
The audit calendar is one example. For a company pursuing a significant financing, issuance of annual financial statements can become a strategic milestone. Management may believe that a refinancing is highly likely to close, but accounting and auditing judgments must be based on the applicable standards and the facts existing at the relevant time.
Other stakeholders operate on their own timetables. A supplier may conduct a credit review before the refinancing closes. A major customer may be considering a multiyear contract. An existing lender may be deciding whether to grant another accommodation. A prospective lender may be determining whether to commit resources to the transaction.
The company does not control when those decisions will be made.
That is the significance of what I call the going concern clock: the period during which management must convert financing plans into completed actions before time begins narrowing the company’s strategic options.
The lesson is straightforward: execution must stay ahead of the calendar.
Turning plans into progress
Every significant financing creates an execution gap.
The financing strategy has been identified, but the transaction has not been completed. During that period, stakeholders evaluate the company based less on what management expects to accomplish than on what it has actually accomplished.
Every meaningful milestone therefore matters.
An executed lender amendment, a committed capital infusion, a completed asset sale, an operating improvement or a significant customer agreement can replace uncertainty with observable progress. Each gives stakeholders another reason to conclude that management is moving toward a durable solution.
Financing sources make similar judgments about management itself. A team that repeatedly meets deadlines, produces reliable informatio, and resolves issues promptly creates a different negotiating environment from one that continually explains why the next milestone has slipped.
Directors also must determine whether management’s financing strategy remains realistic, whether assumptions have changed, and whether alternatives need to be considered.
Successful financings therefore rarely depend on one transformative event. More often, they are built through a sequence of disciplined actions. Each completed step reduces uncertainty, strengthens credibility, and preserves options.
The objective, beyond simply completing the financing, is to ensure that progress stays ahead of uncertainty.
The CFO must lead the process
A financing may involve investment bankers, lawyers, accountants, consultants, lenders and other specialists. Each brings expertise that management needs.
But advisers advise. Management must manage.
The CFO should ordinarily be the executive who integrates those separate workstreams. The CFO sits at the intersection of the information on which virtually every participant depends: liquidity, forecasts, covenant compliance, operating performance, financing terms, reporting obligations and the assumptions underlying the business plan.
Material financing communications therefore should flow through, or at least be promptly visible to, the CFO. Financial projections and assumptions prepared for financing sources should be reviewed with the CFO before distribution. Material changes in transaction structure or strategy should be discussed with the CFO before they are advanced externally.
That does not mean the CFO should approve every email or participate in every conversation. It means no adviser or internal constituency should be pursuing a material financing strategy without the executive responsible for the company’s financial position knowing what is being proposed and how it fits with the overall plan.
For an important transaction, that responsibility can be established at the outset. An investment banker’s engagement letter or a short transaction protocol can identify the CFO as management’s principal coordinator and provide that material changes in strategy, financial assumptions, lender communications and transaction structure will be reviewed with the CFO.
Critics might call this bureaucracy, but I see it as execution discipline
Without it, parallel workstreams can develop quickly. Bankers may pursue one financing structure while lawyers negotiate documents based on another assumption. Projections may be circulated before operating changes are incorporated. A lender request may have financial-reporting consequences that are not identified promptly.
The CFO is the executive best positioned to see those connections before they become problems.
The CFO and the board
The same principle applies to the board.
The CFO should ordinarily serve as management’s principal liaison with directors concerning a significant refinancing. That does not mean the board should hear only from the CFO. Depending on the transaction, directors should hear directly from the CEO, investment bankers, lawyers, accountants and other advisers.
But someone within management must assemble those separate perspectives into a coherent picture of the company’s financial position and the transaction’s progress.
The CFO can explain not only where negotiations stand, but how the proposed financing affects liquidity, covenant compliance, cash flow, financial reporting and the company’s ability to execute its business plan. The CFO can identify what has changed since the board’s last meeting, whether the assumptions underlying the financing remain valid, and which developments require a board decision rather than merely an update.
That distinction matters.
Directors should not become day-to-day managers of a refinancing. They need the information necessary to understand the company’s financial position, evaluate management’s strategy, consider material alternatives and make the decisions reserved to them.
For the board, the CFO should be the person who converts a complicated financing process into the information directors need to make those decisions.
One financing, one set of facts
A financing generates information for many audiences. The board receives presentations. Lenders receive projections and diligence materials. Auditors receive forecasts and management analyses. Suppliers, customers, employees and investors may receive other information about the company.
Those communications appropriately differ in detail. But they should originate from the same underlying facts.
The CFO is the natural control point for ensuring that financial assumptions are consistent, current and understood. That does not require identical messaging. It requires coordination so that the company does not undermine its credibility through unexplained inconsistencies.
Every financing has two closing dates. One is controlled by the documents. The other is controlled by the judgments of the people whose confidence the company needs to preserve its options. Successful CFOs manage both.
