Know o ing Y o Y ur r Options s & How to Access Them

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1 Knowing Your Options & How to Access Them

2 Funding Choices in Edinburgh & Scotland Type of Finance Investment Grants Loans Type of Finance Invoice Financing Owners Capital Cash From Profits Asset Finance

3 Cash From Profits Best method if your business model is cash positive eg. ecommerce Organic growth No need for early equity sale No need for valuation

4 Investment Angel Venture Capital Owners Capital

5 Owners Capital Often kick starts the company Useful matching funding Qualifies for tax reliefs Can match SE Seed & SCIF funds Can avoid pressure on valuation Must keep a record & involve legal advice

6 Angel Big tax incentives for angels Growing & Active angel community in Scotland increase from 2-23 syndicates Scottish Enterprise matched funding Accessible and approachable Vital source of funding to unlock growth

7 Venture Capitalists I DON T KNOW THEM OR DEAL WITH THEM

8 Acquisitive Deal size over 1M Not accessible Venture Capitalists Will remove founders Different tax regime Exits are driven through Will dilute early investors

9 Grants Strategic engagement Free capital Not retrospective Maximum sum and % Smart/ IRG/ R&D Innovation/ Marketing S46 Awards /prizes

10 Banking The first barrier to people starting up in business is lack of funds. The classic line is Banks wont lend so I wont bother In your groups list the key things in a business plan that you think Banks look at when deciding to fund a business and why???

11 Banking CAMPARI Canons of lending Character Can you the customer be trusted, what is your track record, your historic actions will be considered here, have your previous projections been optimistic / conservative. Ability What key skills does the organisation s management possess for the proposal presented. Are there areas of weakness in the management team? Margin Set to match perceived level of risk; including commission, interest margin and fees. Purpose Is bank prepared to lend for purpose stated, is it against bank policy, is it illegal or is the bank wary of the market sector? Could the bank consider that the proposal is too risky, development capital will often attract a premium margin when compared to normal working capital or owner occupied premises finance.

12 Banking CAMPARI Canons of lending Repayment The crucial element, a source of repayment needs to be established at the outset trading profits turned into cash-flow, trade sale, asset disposal, market quotation, what ever the source this needs to be set out for the bank. It must also be identifiable not merely a promise. This is their real risk assessment task and a major component is usually the assessment of the historic trading figures and the projections. Early stage companies with no or minimal sales and no chance to establish credibility in financial forecasts can have problems here. Insurance In case something goes wrong the bank will normally seek some form of appropriate collateral ideally something that is easy to take, value and if necessary realise

13 Types of Loan Business Bank Direct Strathclyde Loans PSYBT East of Scotland Investment Fund Edinburgh Small business Loan fund

14 Asset Finance A useful definition of leasing and asset finance is the use of credit or leasing facilities provided by a specialist third party credit or leasing provider to finance the acquisition of assets for your business. The leasing or asset finance provider will normally require security to be taken on the asset and this is usually independent of any other security. The cost of the leasing or asset finance arrangements is spread over the normal life of the asset. Assets for your business that can be funded in this way normally have a readily realizable resale value and so are generally tangible assets. Specialists in this area are: Aldermore Bank Lombard However all business banks have their own asset finance division.

15 Invoice Financing A form of asset based lending, invoice finance allows businesses to release the cash tied up in unpaid invoices. An invoice finance company can advance up to 90% of the value of unpaid invoices, typically within 24 hours of the invoice being issued. Invoice finance is a broad term used to describe factoring, invoice discounting, recourse factoring, invoice factoring and confidential invoice discounting. There are a few basic requirements for any business that wishes to go down the path of Invoice Finance so before going any further you should take a look at aspects to confirm suitability. Turnover Generally, a business needs to have a turnover of at least 50,000 a year before it would be feasible to use an Invoice Finance unit. The reason for this is straightforward. Lender and Invoice Finance providers take a percentage of their customers turnover and this has to reach a certain level before it becomes profitable for them to help. Credit terms Only businesses which offer credit terms for their customers of between 30 and 90 days are suitable and which usually have a wide number of invoices outstanding. Businesses which deal largely in cash sales tend not to need Factoring or Invoice Discounting as their cash flow, by its very definition, is good. Businesses offering longer credit terms than 90 days mean that Invoice Finance providers would have to wait too long before invoices become payable. Type of businessonly businesses who provide products or services to other businesses are able to benefit from an Invoice Finance unit. Similarly, it is more generally used when customers are UK based, although some providers will work with businesses who have international customers.

16 What do investors want to see in the numbers Summary figures on exec summary 3 year P&L, Balance Sheet, Cash flow Key Performance ratios Liquidity, profitability, growth Competency in the entrepreneur

17 What do investors want to see in the numbers Look, sound & be competent Figures irrelevant if not competent with numbers I won t invest in you -Dragons Den If competent then more confidence in figures

18 What do investors want to see in the Growth rate Sensitivity analysis eg 20% lower sales Details of what investment needed for working capital, stock, patent costs, marketing, plant & equipment, Ratios margins, stock turnover, liquidity Price of product/service numbers -the detail Balance Sheet Figures Fixed Assets Debtor Days eg 40 Creditor days 30 Stock level Loans Investment Finance Strength that investment brings

19 Valuation Investment unleashes growth Justify sales & profit forecasts Sell yourself & your team Tell the investor how they will get their money back Describe exit type State your valuation Ask for investment of x Justify your valuation