Funding growth september 2011

Funding Growth

Craig West

AMEX Small Business Survey 2010:

• 34 % of owners believed that a business “term loan” and a “line of credit” are the same thing.

• 40 % believe it’s a good idea to approach as • many lenders as possible.

• 67 % waited until they need cash • (within 7 days) to act.

1. Reinvested profits are perfect.2.Tap into trade credit.3.Line up credit lines early ( before needed ).4.Expand banking relationships.5.Consider alternative loan sources.6.Equity funding – capital raising.7.Employee Share Plans

Funding growth – 7 keys

Reinvested profits are perfect

46 % of owners said they planned to finance their growth by reinvesting profits.

•“Patient” Capital•No Debt - No Dilution•Dividend Payout Ratio

ProfitsGross profit + 5 %

Reduce expenses - 5%

Increase sales + 5%

The 5 x 5 x 5 Process

Increasing Business Profit & Value

How does it work?

5% improvement in three key areas of your business

Profit & Loss Statement

2011 Current%

Improvements Planned 2014(3 years

later)

Planned %

Sales $ 3,000,000 100% 5% Increase $ 3,150,000 100%

COGS $ 2,250,000 75% 5% decrease $ 2,205,000 70%

Gross Profit $ 750,000 25% $ 945,000 30%

Fixed Overheads $ 112,500 15% 5% decrease $ 94,500 10%

NET PROFIT $ 637,500 21% $ 850,500 27%

Here’s an example :

NET PROFIT IMPROVEMENT $213,000

PERCENTAGE IMPROVEMENT 33.41%

Reinvested profits are perfect

Tap Into Trade Credit

Cash flow cycle – debtors vs. creditors

• Collection policy• Settlement discounts• Long term supply contracts

Line Up Credit Lines Early

Umbrella before the rain ( not during the storm ) .

• LOC vs. term loan.• Match loan term to purpose – long vs.

short debt.• Interest rate ( cost ) vs. return.

Expand Banking Relationships

• Regional or community bank.

• Bi-annual review – “interview” your bank.

• Broker to identify – “Which bank ?”

Alternative Lending Sources

• Credit Unions?

• Factoring

• Peer to Peer Lending

Peer to Peer Lending

• www.lendingclub.com

• www.prosper.com

• www.loanio.com

• www.franklinpartners.com.au

Equity Funding – Capital Raising

• Expensive – 25 % returns = 25 % cost of funds.

• Release equity to release value.• Ongoing source of funding – gradual sell

down.• Investment ready?

Equity Funding – Capital Raising

10 Trends in Capital Raising

No.1: The old rules will never change, strong businesses will continue to attract new capital no matter where and what industries you are in.

No.2: The power of Internet and Online media will play a pivotal role for any company seeking to raise capital


No.3: No passive marketing or investor relations. The more marketing activities you engage in, the better the possibility.


No.4: Social Media as Investor Relations Tool -Social Media will play a very significant role in the capital raising industry in the future, both from marketing, networking and the way deals are structured.


No.5: Competition in deal flows: One interesting aspect because of the power of Internet is that you can approach investors anywhere in the world. From capital seekers' point of view, this is both a pro and con, as you could now see competitors from other nations also contacting the same VCs with their ideas, and vice versa.


No.6: He who owns the database rules. If you own a database of clients, prospective investors, prospective shareholders, then you will be in a much better position to raise capital.

SPREETS.


No.7: Welcome to Global Village. Thanks to the rising emerging markets, capital seekers now have a much wider choice in terms of capital investments; you can now tap into the fast growing venture capital markets in Asia as well as other emerging economies.


The total value of transactions that closed in CY2010 increased 35% over the previous year to

US$736 billion. Europe and the Asia-Pacific region were the largest contributors to growth

No.8: Rising Middle Class Individual Investors from Emerging Economies '" In many instances, it is much easier to raise capital from individual investors instead of institutions. With the fast rising middle class in emerging economies such as the BRIC Economies, you should also consider them as a possible capital raising source.


No.9: Do you really need to raise capital? Again, always ask yourself question, what is the purpose in raising a capital? If you are raising capital for expansion, you will have a much better chance.


No.10: Contingent Plan: Ask yourself this question; if you cannot raise the capital, what are you going to do about it? Always remember this, less than 3% of businesses can raise capital from Venture Capital or Private Equity Firms.


Employee Share Plans

What Next?

Further information on our website:www.successionplus.com.au

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Craig West1300 665 473

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Funding growth september 2011

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