Funding Connector Sydney. Flexible Funding for High Growth Presenter: Lachlan Handley Fifo Capital

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1 Funding Connector Sydney Flexible Funding for High Growth Presenter: Lachlan Handley Fifo Capital

2 Cash is king! Cashflow is key for all businesses! Rapid growth can o>en mean an increase in expenses (product dev, BD, supplies, wages, rent, tax etc)! You may even be profitable from a P&L perspecjve! But cash is different to profitability! We ve all heard the sayings: - Cashflow is the lifeblood of every business - A sale is not a sale unjl you ve collected the cash

3 Cashflow - the lifeblood of every business Source: Dun & Bradstreet Business Expectations Survey, Q2 2015

4 What are the typical funding opjons for SME s: TradiJonal sources of finance! Credit card! Overdra>! Loans from family members! Trade and equipment finance

5 What does the bank look for? CharacterisJcs the bank is looking for:! Profitable and can service the loan! Property security (home or business premises)! Trading history of at least 2 years! Creditworthiness and lack of adverse reports! Tax up to date! Capable management! Usually operates in the right industry

6 So Bank finance is ideal if:! You have property security! Have been in business for at least 2 years! Are looking for a medium to long term funding opjon

7 What challenges do small businesses face?! NegaJve equity! Possibly no property security or security fully ujlised! May have been operajng less that 2 years! Lack of presentable financials and forecasts! Credit issues! ATO debts or ATO payment plan! Lumpy, seasonal or rapidly growing sales! Industry?

8 Outcome 1. Businesses that need funding LESS are more than likely to get it. 2. Businesses that need funding MORE are less likely to have access to it.! MOST SME businesses fall into category 2 at some stage! What are some alternajves to tradijonal bank finance?

9 The bricks & mortar trap 500, , , , , , , , ,000 50,000 0 Year 1 Year 2 Year 3 Year 4 Cash need

10 Cash Flow Finance in focus Also known as.! Invoice DiscounJng! Invoice Finance! Factoring! Debtor Finance! Receivables Funding! Cashflow finance

11 What the financier is looking for! Business to business sales (not B2C)! Credit terms! The good / service has been fully delivered! Your credit worthiness important! But more so looking at the creditworthiness of your customer

12 Debtor Finance Turnover a $63bn industry! (A$ in millions) 70,000 60,000 50,000 40,000 30,000 CAGR 13% 63,157 Source: Debtor & Invoice Finance Association 20,000 10, ,

13 How it works Funder Client Customer 2. Copy invoice 1. Sells product 1. Client provides goods or service to their customers and invoices them 2. Invoice details are sent to the funder 3. Advance funds 3. Funder makes available up to 80 90% of the value of the invoice (s) 4. Payment to funder 5. Surplus funds 4. Customer pays invoice(s) to funder 5. Funder then repays the balance of the moneys less charges

14 Worked example Example Invoice for completed work $100,000 Payment to you by financier (80% x invoice value) $80,000 Debtor later pays the $100,000 invoice: Invoice discount fee (5% x $100,000) $5,000 Residual payment to you $15,000 Total amount received by you $95,000

15 Key benefits of cash flow finance! Immediate working capital injecjon! ApplicaJon turned around faster than a typical bank loan! Converts debtors to cash (A/c Receivable usually the biggest asset)! Not debt on the balance sheet (replaces Ac/Rec with cash)

16 Key benefits of cash flow finance! Property not required as security! Greater buying power, early payment discount! Negates the need to offer customers discounts and rebates (which o>en become perpetual)! Facility increases as the client grows (contrast typical overdra>)

17 The bricks & mortar trap - solved 700, , , , ,000 Debtors Debtor Finance Cash need 200, ,000 0 Year 1 Year 2 Year 3 Year 4

18 Broadly 2 different facilities: 1. Whole of ledger / turnover / book facility 2. Spot / selecjve facility

19 1. Whole of ledger facility! Finance enjre debtor ledger (i.e. all your invoices)! Minimum turnover requirements, facility size and fee! 12 month contract! Fees generally 1-2% of turnover, 8-12% on drawn funds, some establishment fees, audits! Suitable if you need to fund a high proporjon of your invoices each month

20 2. Spot factoring facility! Can finance a single invoice! Only use (and pay for) the facility when needed! Low minimum invoice size, typically $10,000! Not locked in to a contract! No property security! Fees generally a discount fee of ~5%! Suitable if need for the short term! High value low volume ledgers work best

21 Spot v Whole of ledger Whole of Ledger Invoice Value $10k $200k+ Niche providers (e.g. Fifo Capital) Factoring business and Banks (e.g. GE, NAB, Westpac, Bibby, Scottish Pacific) Invoice Amount $400k+++ Single Invoice

22 Industries well suited to Cash Flow Finance! Light manufacturing! Wholesalers / Importers! Transport & LogisJcs! Earthworks! ConstrucJon! Professional services! Mining services! Recruiters / labour hire! IT! MarkeJng & media

23 Using Cash Flow Finance to Secure a Future Business Loan! As menjoned, factoring your receivables is usually faster than a bank loan and the financier is more interested in the credit worthiness of your customers.! Once you qualify for cash flow finance you now have the funds available to maintain growth, pay bills on Jme, pay tax, hire more staff etc.! Banks love to see trading history, profits and that tax is being paid.! Over Jme you will develop a good trading history (hopefully) with a strong case to present to the bank if you decide to apply for an overdra>.

24 Case study 1! Client had a blue / yellow collar labour hire business! Small bank overdra> but quickly exhausted due to rapid growth! Requirement to pay his staff weekly! His payment terms 14 days so cash flow stress from carrying 2 x weeks wages bill! Then started picking up larger clients who refused 14 days terms, demanded 30 days end of month terms! Rather than turn away the business, Fifo able to fund just the longer term debtors

25 Case study 2! Wine importer supplying large najonal grocery chain! Payment terms 90 days end of month! His supplier offers 45 day terms from when shipment leaves overseas! Product selling well and more orders coming in! Cash flow squeeze as cash required to pay supplier, shipping company, freight, insurance, tax etc before payment received from customer! Invoice finance facility bridged the cash flow gap and funded growth

26 Contact details Lachlan Handley Fifo Capital - NSW P: (02) M: E: W: Ella Bryan Fifo Capital - NSW P: M: E: W:

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