Tuesday, 31 January 2012

Invoice Discounting and Factoring. All providers are not the same

It is a common misconception that all Invoice Discounters and Factors are the same and that it really does not matter who you use for and it is OK just to use the first one that says yes or to always use the one that you already know. On the odd occasion this might work, but more often than not you will not be getting the best deal.
You have to know the market. You need to get comparisons from a carefully selected 5 or 6 providers, you have to put them in competition with each other and you have to know all the difficult and important questions to ask them and most importantly you have to know their hotspots, the deals that they really want to do and so offer their best terms. You also need to understand why you should avoid using the client’s own Bank for this type of funding.
There are over 50+ providers of invoice discounting and factoring. These include the ones that will do very small deals, and those that will do very large deals and those that will allow you to only finance one single invoice. They also include ones that just have a 7 days cancellation clause and others that have a one month cancelation clause. Those that will do IT companies and specialists that only cater for the care home industry and the panel beating market place. The most important ones to know are those that are willing to do the unusual, the non standard and even those that will do the contractual type deals that are normally off limits. There is now a company that lets you auction your invoices to the highest bidder.
The moral of this story is that it is very easy to arrange a bad invoice discounting or factoring contract for your company. It is much harder to arrange one that comprises both good value and reasonable terms and conditions. Remember everything is negotiable if you know the market place. Do not just take the first deal that comes along. Create competition.
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Friday, 27 January 2012

How to Write a Winning Funding Business Plan

Part 2: Getting Started
This month’s blog is going to concentrate on how to get started when writing your funding business plan. Staring at a blank page and trying to get inspiration is often very daunting, especially as most people have never had to write a funding business plan before.
I always start by deciding on the structure of the plan. It has to flow in such a way that the reader not only understands what the company does and how it will go about doing it, but also it must cover all the essential areas of interest, without repetition, and above all it must excite the reader and distinguish your plan from the pile of others sitting on an investors desk. Remember you are writing a document that has to contain what an investor expects to see and not what you want to say.
There is no mystery about the structure, just think logically about what an investor wants to know and the best way of leading him/her through the detail.
The most important part of the plan is the executive summary.  This page and a half summarises the 9 areas of the plan that an investor expects to see. I give more details later in this blog.
After the executive summary the structure should flows in a logical manner;
What is the structure of the company and at what stage of development is it at?
What are the company objectives in terms of turnover and profit?
What are the products, the need, description, and proof of concept?
The marketplace, description and size and where do you fit?
The sales and marketing plan, including all the detailed assumptions that have been made.
The operations plan, how the company will run, the location, the people requirements, the order and fulfilment flow.
Who are the management team, their track record, experience?
The financial model, explained in words for those that do not like spreadsheets.
The financial model, with spreadsheets for P & L and cash flow for 3 years, done on a monthly basis, and a balance sheet.
As stated before the executive summary is the most important part of the plan. Investors will read it and then decide if they want to finish reading the plan or throw it away. It should be no more than 1.5 to 2 pages in length and it should contain the mandatory 9 points: A description of the business; a description of the product or service, the marketplace; the potential of the business; the 3 year turnover and profit forecasts; what investment is required and what it will be used for; what investment have the directors made; what are the prospects for the investor and what is the exit strategy. The executive summary is normally one of the last parts of the plan that is written.
Colour and pictures are very important in a plan. Give the section headings a colour and add pictures that help explain the product or service. Make your plan different to all the others and more visually appealing.
Then you actually have to start writing. I always find this difficult, but once I have started the rest just flows. So I start with what I consider to be the easy bits, but also bits that make me think about the company. I normally start by drawing the organisation chart, making certain I have included all the people I need for 3 years. Then I create the SWOT analysis (Strength, weaknesses, opportunities and threats and after that I write the unique selling points section. The point is you do not have to start writing at page one. Start with a section that you feel comfortable with and the rest will come naturally.
Next month, in part 3 of this blog, I will describe what should be included in each individual section of the plan.

Tuesday, 17 January 2012

Local Funds for Local Companies

Community Development Finance Institutions (CDFIs) are non-profit organisations that lend money to individuals, businesses, social enterprises and charities that can use the money to help develop their local community. CDFIs lend money to people who find it difficult to borrow money from banks and building societies, with lower interest rates than doorstep lenders or loan sharks. Different CDFIs lend in different areas and for different purposes.
CDFIs were launched in 2001. Some are regulated by the Financial Services Authority and all abide by the Community Development Finance Association’s code of practice. Last year CDFI’s made approximately 1,500 loans worth £24m to start-ups and established firms turned away by the banks. This funding helped to create 720 new businesses and safeguard a further 720 businesses and 3,500 jobs.
This type of funding is risky for the lender and interest rates charged reflect this. Loan sizes vary but are typically between £5,000 and £20,000.
There are 62 CDFIs in the UK, spread all over the country and fund different types of projects.
Please contact Pegasus Funding Resources for contact details of those in your area.

Wednesday, 11 January 2012

The Seed Enterprise Investment Scheme (SEIS)

There is now some concern amongst management teams thinking about raising equity funding, about whether or not they ought to go ahead now under the existing EIS scheme or wait for the new SEIS scheme.
The SEIS legislation is still in draft form and will only apply to share issues made on or after April 6th 2012. If the legislation remains in its current form, an investor could avoid paying tax on 28% on an existing capital gain and get income tax relief worth a further 50% of the investment, meaning that the net cost to the investor is a mere 22% of the amount invested.
There will be, however, some tight limits on SEIS. The company must be less than 2 years old when the investment is made, have a qualifying trade, have less than 25 employees and have gross assets of under £200,000. There are also restrictions on an investor having any previous connection with the company, and also they may not own more than 30% of the company to qualify.
There is also a maximum that a company can raise under SEIS, this is £150,000, and so if you want to raise more than £150,000, you will need to consider the timing and interaction of SEIS and EIS. It is likely that there will be a new requirement for getting EIS relief that a minimum of 75% of any money raised under SEIS has been spent before EIS can be given.
Ideally, if you can wait until April, you may want to raise £150,000 under SEIS, spend it on the business and then follow that up with EIS funding.

Tuesday, 3 January 2012

Case Study: Mamka Ltd, £40,000 Crowd Funding Loan

Mamka is the umbrella company for a group of online retailers. Mamka is one of the UK’s fastest growing online retailers with brands such as ‘Outdoor Leisure Direct’, ‘Togga’, ‘Play Darts Direct’ and ‘I Heart Pets’.  We stock a large and diverse range of products including Inflatable Pools and Boats, Wetsuits, Beach Wear, Pet Accessories, Toys and Games, Pet Products and Darts through our brands.
We’ve grown from a turnover of £60,000 in 2007 to £1.9m in 2011. Mamka have a good relationship with their bank who provide a £10,000 overdraft and a trade finance line for £245,000. They need to fund growth and an increase in goods sourced from China and were looking for a £40,000 loan to support this process.
Pegasus identified an internet funding network and worked with Mamka to develop a business proposal that describes the business, the purpose of the loan and an explanation of why the business is safe to make a loan to. The proposal also requires latest management accounts and at least two years filed accounts.
A term loan over 36 months at a single figure annual interest rate was secured within 5 days.