Overview. Early Warning Signs of Business Distress. Invoice Finance Overview. Case Studies

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1 Sonja Pfitz

2 Overview Early Warning Signs of Business Distress Invoice Finance Overview Case Studies

3 Early Warning Signs of Business Distress Aging Receivables Ledger Aging Payables Ledger Increasing Tax Debt Financial Statement Indicators Break Down in Relationship b/w Directors/Shareholders Declining Markets Car Manufacturing & General Manufacturing Key: Early Intervention through a collective group of experts to assist the client.

4 Invoice Finance Overview What is Invoice Finance? Invoice Finance is a working capital solution used to accelerate cash flow from a businesses accounts receivable. It is a self liquidating finance option that requires no property security.

5 Receivables by Industry SECTOR % Wholesale Trade 38 Manufacturing 19 Labour Hire 11 Business Services 9 Transport & Storage 7 Agricultural & Mining 3 Other 10 Source: DIFA Q1 statistics 2015

6 Lack of cash slow paying debtors or traditional finance not available or can not be extended. Financing Changes in Business Fund rapid sales growth Accelerate Cash Flow to take advantage of Supplier Discounts or Volume Satisfy ATO or Supplier Obligations M & A s MBO s Alternative to Mortgage Finance Refinance from banks due to breaches in covenants Funding Administrators to trade businesses on Funding a business in DoCA

7 How It Works 1. Invoices Raised 5. Balance less fees, returned to Client 2. Invoices sent to Invoice Financier 4. Customer Makes Payment 3. Invoice Financier Funds Client

8 The Facts: Case Study 1 Cabinet Maker T/O $1.2M ABC Pty Ltd Current Actual Limit $ 250,000 Sales $ 1,200,000 $ 1,600,000 Gross Margin 35% $ 420,000 35% $ 560,000 Overheads 25% $ 300,000 21% $ 336,000 Service fee 1.00% $ 16,000 Interest 9.73% $ 17,028 NPBT $ 120,000 $ 190,973 Invoice Finance enabled the business to increase sales, remove the directors property from the business as security to a small business loan. Property was later used to assist with increasing personal wealth of director via other means. Lower overheads as a % of sales due to infrastructure/staffing already in place Improved NPBT does not take into account: * eliminating early payment discounts offered to debtors * taking advantage of early payment discounts/volume discounts from suppliers

9 Case Study 2 The Facts: Manufacturer T/O $45M Management Buy Out (CEO making acquisition) ATO debt circa $1.5M Falling behind on vendor payment terms High rent costs operating from 2 premises Making Losses made worse by: - High volume low margin jobs - Long time to consolidate into single premises - Waiting for Fed Gov t Research &Development grant $2-3M Very strong customer base Good terms and strong relationship with suppliers After Invoice Finance was introduced debt obligations were corrected and business continues to trade on profitably

10 Case Study 3 The Facts: Recruitment Firm - Initial T/O $4M Making Losses ATO arrears Increasing Workcover costs construction industry has highest w/c costs, so were paying highest rate across the board Growing too quickly After Invoice Finance was introduced, coupled with the engagement of special counsel to assist the business with a turnaround strategy, the business continues to trade, is now turning over $60M (through organic growth & acquisitions) and is profitable

11 The Facts: Case Study 4 Printing Business T/O $14M Business approached to buy a failing printing business in another state - Business employs 150 people in a remote area of this state - It had an ATO debt circa $200K - Making Losses made worse by: o High volume low margin jobs o Incompetent board managing the business with expensive personal hobbies o Over purchasing stock which was not converting into sales quickly o Business had a good, well spread customer base After Invoice Finance was introduced to the original business, they were in a position to purchase the second company, of which invoice finance was also provided post the acquisition to the new entity. With the new ownership, 150 jobs were saved, new technology was adopted, new Sales Manager employed, non profitable customers were terminated, the business is now in the position to be one of the tenders for one of the Lottery contracts. Group s turnover of is now $22M and profitable.