raising finance

By Ben Youn

Copyright 2014 Quantum Business House

WELCOME to QUANTUM BUSINESS HOUSE

2 hours for each session 10 minutes tea time Bathroom & Kitchen Today’s Speaker Please network each other Future Plan- Business Forum- Networking Events- Business Mentoring


House Keeping Time

1. Setting up business structure (June 04) 2. Buying a business (June 11)3. Business Planning (June 18)4. Marketing (June 25)5. Raising Finance (July 02)6. Financial Management (July 09)7. Tax system and compliance issues (July 16)8. Risk management (July 23)9. Financial Health Check (July 30)10. Business Evaluation (August 06)


Start-Up Business Seminar 2014

2.Raising Finance

Equity or Loan


Equity

- Owner’s capital (ordinary shares or preference shares)

- Investments (e.g. angel investors)- Trust Funds- Partnership Capital


Equity or Debt?

Debt- Bank overdraft- Bank loan- Convertible notes- Factory financing


Equity or Debt?

Normally no securities required (greater risks)

Aiming profit distributions and greater business valuation (Return on Investments)

Rank behind all other secured and unsecured creditors when the business winds up i.e. loss of capital and ROI.

Bear risks of finding a new buyer to exit the investments


Risks for Equity Holders

Default risk- Unable to pay the interests- Unable to repay the principal when maturity

arrives.

Security requirements to mitigate the risks such as mortgages over property fixed charge or debenture or specific assets (e.g. Account Receivable)


Risks for Debt Holders

Sale of shares or units

The amount of return of initial funds invested will depend on the change in value of the business and the ability to find a willing buyer or appropriate exiting strategy


Return of Investments

Based on the terms of repayment of the fund borrowed

The fund will be repaid either instalments over the loan period or at the end of the term.

The business will need to generate enough fund from the profits to meet the repayment commitments.

Debtor financier does not share the risks of the business or fruits of the business.


Repayment of Debt Fund

Debt - Higher gearing structure means bigger

commitments to external parties (interests)- Income tax advantage (tax deductible)- Reduced profits

Equity- Additional room for debt finance - Increased profits (compared to debt finance)


Debt or Equity ?

Combination of two? Convertible notes? Consideration also requires:- The ability to recognise an investor’s

interests in operating the business with voting right.

- Your attitude to lose 100% control position- The need to reduce the risk associated with

the gearing level.- Is your business attractive to investors?


Debt or Equity ?

Review of existing debt finance arrangement on a regular basis.

Changing lending institution with better options including different debt product, increasing or decreasing the amount of borrowing, changing the repayment amount or timing etc.

New debt to pay off old debt


Refinancing

Gaining a better interest rate Changing interest structure (e.g. from

variable to fixed) Gaining more flexible features in a facility to

meet your business needs Changing the financial cashflow

commitment Releasing security over personal

asset/specific assets


Purpose of Refinancing

Dangers!!- Fees (e.g. early exit fees or penalty)- Costs of refinancing- Changing in valuation of your security

Benefits- Access to increase in debt finance- Consolidation of debt funding and cashflow

saving- Restructuring security offering


Refinancing

Bank manager (or loan officer)’s recommendation then to credit manager

Personal information- Personal assets- Tax returns- Personal bank details- Credit history


Loan Application

Business historical information- BAS statements- Debtors and creditors lists- Bank statements- Any loan arrangements

Forecast- Cashflow forecast- Profit and Loss forecast- Balance sheet forecast


Cont’d

Business Plan Purpose of the loan The amount of the loan- Make sure you borrow right amount of

money Term of the loan Servicing the loan Security of the loan Presentation and consultation with business

banker


Loan Application

Financial Management Tax system and compliance issues Risk management Financial Health Check Business Evaluation


To be Continued!!