5 ways to Raise Cash for Business

Budget & Financial PlanningRisk Assessment Corporate Planning Working CapitalMargin Improvement

FD4 – 5 requirements for cash

1. Fund growth2. Invest in capital, plant, stock, premises,

staff3. Ride through a cash crunch4. Fund a merger or acquisition5. Start a business

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FD4 – 5 things to consider

1. How much? 2. Why: capital purchase, employment, liquidity3. When: how long will it be needed4. What: Internal v External5. Who: Partner, investor, lender, which in turn depends

on• Attitude to risk – offer up personal assets as security –• Level of valuable assets in the business for security• Whether or not you’re willing to concede some

element of control and profit in the business

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FD4 – 5 sources of Finance

1. Internal 2. Equity3. Bank overdraft/loan4. Government Grants5. Asset financing

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FD4 – 1. Internal sources

Cost cut, delay discretionary spendMaximise working capital, debtors, creditors and stockRetain profits in the business, scrap dividendsTax planning, maximise incentives such as R&D tax credits

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FD4 – 2.Equity

Venture capitalist, Business Angel, private equity, friends and family

Advantages include:Investors have expertise and contactsNo interest payments, or personal collateralRisk shared amongst many

Disadvantages include:Complicated and expensive process, legal and regulatedDiluted share in businessLoss of control over business decision making

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FD4 – 3. Loans

Advantages include:They are not repayable on demandCan be tied to the lifetime of equipment or other assets Can retain control and share of profits

Disadvantages include:May pay charges if you repay earlyMay struggle to meet monthly payments May lose security

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FD4 – Overdraft

Advantages include:Flexible - only borrow what you need and so cheaper than a loanQuick to arrangeNot penalised for paying off early

Disadvantages include:Charges: to extend your overdraft or exceed limitCan be withdrawn at a moments notice Restricted to your own bank

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FD4 – 4. Governmental Grants

Advantages include:No need to pay back or pay interestKeep control over the company

Disadvantages include:Grants are for only certain purposesMuch competitionMay have to put up matched Awarded for new initiatives not Difficult and time consuming applications.

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FD4 – 5. Asset financing

Advantages include:Leasing or renting assets helps cashflow, delayed purchaseAccess to assets that are unaffordableNo potential loss of personal assets, only the past payments and asset.Breakdown is the reasonability of lease companyit’s widely available

Disadvantages include:Tax loss – capital allowanceMore expensive than outright purchaseExpensive to get out of agreementProbably need a deposit

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FD4 – Invoice factoring

Debt factoring – sell debts to 3rd party who collect the debts.They advance approx. 85% to you upfront and pay the balance minus fees on receipt from the customer

Advantages of factoring include:3rd party looks after sales ledger, credit check customers and chase debts.DisadvantagesCan wipe out customer profitReputational risk if 3rd party deals badly.

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FD4 – Invoice discounting

Invoice discounting3rd party lends money against unpaid invoices – at an agreed percentage of their total value. For a fee.

Advantages of invoice discounting include:ConfidentialRetains customer contactDisadvantagesLoss of profitRestricted to B2BLoss of debt book to secure alternative funding

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FD4 – 5 things to do right

1. Set a goal for the money, outcome, return on investment2. Produce a business plan to show credibility and returns

for an investor3. Choose partners well, shared beliefs, congruent

personalities, values4. Get company affairs in order, contracts, accounts,

management structure5. Know the value of you business

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FD4 – case study

Biotech client wanted cash to fund more R&D to create value for trade sale.• No assets to act as collateral for loan• Venture loans too expensive• No debt or stock, only creditors to stretch• No opportunities for asset financing• Only option was equity and grants• Raised £20m and secured £2m TSB grant

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And so much more….

FD4 – How we did it

Short list: who has got money, who is interested in this space, who is targeting late stage assets, have we seen them before (any new news).

Term sheet, set a share price/company valuation, liquidation preference, pay to play – modelling.Investment returns modelling, Biotech multiples and recent deals in space & stageDue diligence – BS liabilities, off BS liabilities

Legals: Reviewed and advised on: Article changes, shareholder and subscription agreements.

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And so much more….