SBSA SMEs Seminar2010

Take-off orFinance

Phase

6 Months

Survival orCash-flow

Phase

Start-upPhase

The different stages of business

1 - 2 Years 2 - 5 Years

• Can I deliver my products?• Can I expand my customer base?• Do I have enough money?Need to learn how to run a business, how to develop and execute a business plan, how to access finance

• Understand operating ratios of industry• Manage expenses• Increase salesCash flow needs to be enough to cover costs and to grow the business

• How do I grow?• Grow using cash from the business or borrowed money?

• How do I go about borrowing money?

Sources of Funding your business

Personal Savings Primary source for most business world wide

Family & Friends

• Often cheapest source because it is loaned at a low interest rate, which is beneficial when getting started

• Make sure they know what they are getting into – they have• to know the risks

Bank Finance

• Most likely source of borrowing apart from family• You have to be able to show that your business is viable and

bankable – Business plan and cash flow projections• Management need to convince bank that it has the skills and

expertise to manage the business risks

Equity Finance

• Mostly for growing or expanding business• Disadvantage: you have to give equity or partial ownership• Criteria:

1. Experience and abilities of owner/management2. Industry, products and services offered or market opportunity 3. Growth of the business4. Return on Investment

Loan Originators

• Helps prepare loan application• Submit loan to all banks and other financial institutions

simultaneously• Analyse proposals received and advises Franchisee on the merits of

each• Introduce Franchisee to Relationship Manager

General Lending Solutions

Lending SolutionWhat you need the money for:

Over-draft

Business revolving credit plan

Medium term loan

Business mortgage

Debtor finance

Vehicle & Asset Finance

Working capital: Cash

Working capital: Stock

Office Equipment Plant and other equipment

Fixtures and Fittings

Vehicles Other second hand assets

Property

What does a bank look at when assessing applications?

Financial criteria• Owner’s contribution to the business• Realistic projections• Ability to carry and repay debt • Assets in the business

Management • Profile of the owner/jockey• Management, financial and marketing skills• Technical skills and qualification

Environmental• Viability of the business• Risk associated with the industry• Location• Competition• Barriers to entry

Security/Safety• Tangible collateral (real assets)• Intangible collateral (future cash flows)• Personal assets of owners

Information required when applying for finance

• Business Plan• Financial statements of the business• Personal statements of assets and liabilities for all owners• Projected income and expenditure• Cash-flow forecast• Amount and source of owner’s contribution to the business• Details of proposed collateral

• Business is unsound, risk is too high, bank cannot determine risk – business is not sustainable (70%-80% of all new businesses fail in the first two years)

• Lack of owners commitment, often indicated by his/her contribution to the business

• Business plan does not provide adequate information• Purpose of the finance required is not justified• Character or suitability of owner• Passive investment – owners not involved in the business• Insufficient security or lack of collateral when risk is deemed high

Reasons loans are declined

Business Plans – see www.standardbank.co.za >Business>Starting a Business>search “Business Plan”

Ingredients for a financially successful business

Profitability• Sufficient margins• Sustainability

Stability• Sound balance sheet• Track record

Cash flow• Working capital cycle• Breakeven• Margin of safety• Seasonality

Return on Investment• Mutually beneficial• Pay back period

Debt structure• Debt: equity ratio• Working capital• Capital expenditure• Affordability

Transferable value• Retained equity• Future profitability

Managing your cash flow

• Budgets and budgetingA budget helps you to keep an eye on the future while tracking past performance.

• Financial statementsFinancial statements provide you with the information you need to measure your business’s success and to make sound financial decisions.

• Bookkeeping choresBookkeeping is an administrative task which requires daily attention and helps you to stay on top of your finances.

• Proper invoicingProper invoicing will assist your business to receive payment from clients and keep track of outstanding payments.

• Collecting debtLate payments and bad debt can create cash flow problems for your business.

Poor cash flow management is one of the major causes of failure in small businesses.

It is important to establish good practices which will assist you in managing your cash flow effectively and will help you to ensure your business’s financial health:

Improving your cash flow

• Don’t buy excessive volumes of stock or inventory if there is not a good business reason for doing so.

• Keep overheads or expenses to a minimum. • Improve suppliers’ payment terms. • Arrange an overdraft at your bank that you can use in an emergency

situation. This may just be the life line that is needed to help your business cover a lapse in cash flow for a short period.

• Manage your debt effectively.• Improve debtor collections and reduce debtor terms

Improving cash flow is not a ‘once off event’ but rather a way of doing business

There are a number of ways to improve cash flow within your business…

THANK YOU

QUESTIONS

TheBlackHole1.wmv

“If you're not appearing

You’re disappearing”legendary jazz musician, Art Blakey

Thank You