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Raising Finance - Small and Medium Organisations (Venture Capital and…
Raising Finance - Small and Medium Organisations
Retained Earnings and Working Capital Management
Cash on hand, inventory, receivables
Negative working capital
Works when creditors can be delayed in payment, but debtors pay immediately
ie - Supermarkets
Delaying payment to creditors can have the following imapct
reputational damage
price discounts being forfeited
Does not work when companies receive payment after outlay to creditors
ie - Car manufacturers
Debt factoring
sale of accounts receivables to a third party
Benefits
Company recieves cash promptly
Time taken analyse customer credit worthiness is removed
removes (or minimises) risk of collecting from default debtors
Risks
lower return
factoring house charges interest
Banks
Overdrafts
Great for seasonal or temp cash flow shortages
Bank will set the following terms
Fee's
Review period
Interest rate
Covenants on financial performance
Max size of overdraft
Notice periods for drawing
Security required
Facility Finance
Bilateral
borrowed from one bank
Syndicated
led by one bank, but with investment from others
Commitment fee is for when the funds are in place but the finance is not drawn down
Lease Finance
Company arranges for Bank to acquire an asset it needs
Bank is the lessor
Company is the lessee
At end of lease, company may make payment to secure asset
May prefer not too, especially with tech, that may become outdated
2 Types
Finance Lease
asset is owned by lessor
Operating Lease
lessor retains risks and benefits of asset
BENEFITS
Lessee
Cash flow benefits
more manageable payment terms
means to aquire assets without needing a loan
which may not be available
Lessor
retained ownership
security in event of default
Equity Finance
Ordinary Shares
ownership of company
voting rights
entitlement to share of profits
no entitlement to dividend earnings
Preference shares
ownership of company
fixed dividend (typically)
dividend payable before ordinary shares
only have voting rights in the event of major issues
par value
amount prinicipal issuer will pay shareholder on maturity date
shares issued above this amount are called the
share premium
placed in share prmeium account on balance sheet
Market Value
amount they can be bought or sold for in the market
offer price
price the asset can be purchased for
slightly higher than bid price
bid price
price the asset can be sold for
Venture Capital and Private Equity
Banks finance venture capitalists
venture capitalists finance businesses
recently large companies have been purchasing public companies and returning them to private ownership
venture capitalists have the opportunity for higher rates of return
Angel Investors
invest in small to medium up and coming companies
typically experienced entrepreneurs that can use their expertese to develop the company
BENEFITS
Less concerns with compliance and corperate governance
Less exposed to predatory take over attacks
(Than a publicly owned company)
Company may not be established enough for "traditional" financing
Raising capital is typically faster
