If cash is king, then we all must be monarchists!
Last month we reviewed how businesses can unlock the treasure trove of cash from within their business. This is usually much cheaper and easier than the alternatives. No interest to pay, no new investors, no risk of rejection by the banks.
But, what if the business needs even more cash? What if the cash available within your business is not enough? Should a business first look to borrow money from a bank - or raise capital from an investor? What are the pitfalls and how easy is the process?
And what about the global economy? Aren't investors impossible to find nowadays - and haven't banks stopped lending to businesses?
Just what are the myths and what is reality?
This month we focus on raising money from investors with our guest contributor and the founder of Wholesale Investor Magazine, Reuben Buchanan. He'll provide you with a few ideas to whet the appetite!
And if you have any questions- you can always ask your part-time CFO!
Part Time Professionals represents over 280 independent contract accountants, CFOs and executives who together have helped Australian businesses raise many millions of dollars. By working part-time or on a contract with your business, it is a most affordable solution. If you would like more information about how a CFO Network Member can assist your business to raise capital from investors, please give our team a call on 1300 79 1946.
You have unlocked the cash within your business, but you still need more? Where do you go next - your bank for a loan or investors for capital?
Some people say that you should get cash from whoever is prepared to give it to you! But that is a simplistic answer and doesn't take into account the business, your appetite for risk, and your desire for control of the business.
There is, in fact, a more important question that must be asked first: Why do you actually need the cash?
If you need the cash to fund the working cashflows of the business - is that because the business is unprofitable and unsustainable? If the business is unsustainable and has little chance of turning a profit, then it will be very difficult to raise cash from anyone. Perhaps the business should cut its losses and simply shut its doors.
However, if the business needs cash to fund growth, acquisitions or research and development then it's worth proceeding to the next question.
How much cash does the business actually need?
Both bankers and investors need an accurate calculation. To determine the amount of cash required a business must prepare a reliable cashflow forecast that accurately models future cashflow requirements, repayment plans and dividend streams. Remember, this shouldn't be a Christmas wishlist or an overly optimistic picture of how little you may need to achieve your objectives. If the amount you are looking for seems too high, the bank or investor will presume you will waste their money. If the amount looks too low, no-one will believe you can achieve your stated goals - and if they think you will be coming back for more cash in the next few months they may back away.
Preferably prepared by a qualified accountant, the cashflow should take account of historical experience, forecast budgets, and the effect of variations in predicted sales and costs. Bankers need to know when the loan will be repaid and whether the business will generate enough cashflow from operations to repay it. Investors need to know if the company will pay dividends and/or that the value of the business will increase.
Once the cashflow is prepared, and sustainable cashflows are projected, you can then decide who to approach first.
If you need some in-house accounting assistance to prepare your cashflow forecasts or to prepare an information memorandum for your banker or investor, Part Time Professionals can assist. We will introduce you to one of over 280 contract accountants, CFOs and financial controllers that we represent throughout Australia. Give us a call on 1300 79 1946 and we can introduce you to someone today!
Our CFO Network Members work at your premises as part of Your Team. Under contract - whether part-time or on a five-day-a-week project - these qualified professionals are one of your dedicated in-house team. No employment hassles - maximum flexibility - maximum affordability!
By Reuben Buchanan (Director, MBE Education and founder, Wholesale Investor Magazine)
As the economy is strengthening post-GFC and market sentiment increases, there has never been a better time to raise capital, or sell your business.
This survey revealed the following:
Public companies (many awash with cash) like to acquire private companies in order to increase their size and profit. Plus acquiring private companies is cheap compared to buying ASX listed companies. Further to that, Private Equity (which now manages over $25 billion) continues to seek out quality private companies to invest into or purchase.
On the flipside, there are literally tens of thousands of private companies that either seek capital or seek to exit.
Trade sales are also likely to become more common over the next decade as baby boomers move into retirement and divest of their businesses.
Of course, raising money from investors requires business owners to prepare the business for sale by both de-risking and by maximising profits. De-risking, for example, involves taking a good hard look at your business and taking steps to remove or mitigate any risks that may deter investors.(e.g. do you have an experienced management team, is your intellectual property secured, are your legals and contracts in order etc).
And what are investors looking for? Wholesale Investor found that the top five attributes investors seek prior to investment are:
So what are you waiting for?
Reuben Buchanan is the co-owner and co-founder of Wholesale Investor magazine. This magazine promotes investment opportunities to high net worth, professional and wholesale investors in the private equity space. He also is founder of MBE Education, a company that delivers entrepreneurial business education, courses and seminars to over 5,000 attendees annually. The company provides training to Corporate Advisors, business owners and professionals.
And on the subject of investors...
The most successful investor was Noah. He floated stock, while everything around him went into liquidation.
The most successful female investor was Pharaoh’s daughter. She went to the Nile bank and floated a prophet.
About Part Time Professionals
Part Time Professionals™ is wholly owned and operated in Australia. Our principals together have over 40 years experience in public accounting and as CFO's and Directors in multiple companies - both listed and unlisted. They are members of the Institute of Chartered Accountants in Australia, CPA Australia, the National Tax Agents Association, the Australian Institute of Company Directors, the Financial Executives Institute and the National Institute of Accountants.
Our aim is to help companies source the most experienced CFO, executive and corporate accounting talent, in the most cost-effective way!
We are constantly updating our website, so take a look at www.ptprofessionals.com.au for more information or call us on 1300 79 1946 to discuss your needs.
Phone 1300 79 1946 | +61 2 9973 3179 | email@example.com
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