Docstoc

SME Access to Finance Introduction

Document Sample
SME Access to Finance Introduction Powered By Docstoc
					   SME Access to Finance
   Introduction
   Clive Lewis, Head of Enterprise




BUSINESS WITH CONFIDENCE             icaew.com
   SME Access to Finance - Basic Rules


   • UK Clearing banks do not offer Risk (also called Equity)
     Finance
   • Banks lend on the premise that all finance will be repaid
   •     Comfort to bankers
               - Security from the business’ assets
               - Future profitability (increase in net assets) and cashflow
               - Security from outside the business




BUSINESS WITH CONFIDENCE                                                      icaew.com
   SME Access to Finance - The Basic Balance
   Sheet
   LIABILITIES             ASSETS

   Long Term               Fixed Assets

   Owners Interest         Property, Plant& Machinery, Goodwill


   Accumulated Profits     Current Assets
   & Losses

   Short Term              Stock & WIP


   Creditors               Debtors


   Taxes                   Cash



BUSINESS WITH CONFIDENCE                                          icaew.com
   SME Access To Finance - Long Term Finance


   • Debentures - a document that either creates a debt or
     acknowledges it. The term is used for a medium- to long-term
     debt instrument used by larger companies to borrow money.
     Debentures are generally freely transferable by the debenture
     holder. Debenture holders have no rights to vote in the
     company's general meetings of shareholders, but they may
     have separate meetings or votes e.g. on changes to the rights
     attached to the debentures. The interest paid to them is a
     charge against profit.
   • Loans and Mortgages – offered by a bank usually with
     undertakings called covenants


BUSINESS WITH CONFIDENCE                                      icaew.com
   SME Access To Finance - Short Term Finance


   • Bank loans – fixed repayment terms

   • Overdraft facilities – flexible lending but repayable on demand

   • Trade Credit – suppliers

   • Factoring and Invoice Discounting advances secured on sales
     invoices to pre-approved (by factor) customers.

   • Leasing & Hire Purchase – lending against assets such as
     motor vehicles, equipment and computers

BUSINESS WITH CONFIDENCE                                        icaew.com
   SME Access To Finance - Equity (Risk) Finance

   • Proprietor and Friends and Family

   • Business Angels (up to £100,000) – wealthy entrepreneurs

   • Business Angel Syndicates (up to £1M) – groups of BAs

   • Enterprise Capital Funds (£500k to £1m) – government schemes

   • Small Scale Venture Capital (up to £2m) -

   • Venture Capital (£2m to £20m) – high risk/ potential high reward

   • Floatation on public markets (UK – AIM, OFEX or Main Market)


BUSINESS WITH CONFIDENCE                                                icaew.com
   SME Access To Finance

   What banks look for:


   1. Cashflow forecasts
   • Evidence to support the turnover forecast
   • Historic trading accounts
   • Details of potential income and how calculated
   • Details of loan repayments and interest, dividends, taxes, etc




BUSINESS WITH CONFIDENCE                                        icaew.com
   SME Access To Finance

   What banks look for:


   2. Aged Debtors & Creditors Lists
   • What are payment terms are they in writing?
   • Any trends towards late payment?
   • Comparison with previous months?
   • Explanations of changing trends?
   • Do you do credit checks?




BUSINESS WITH CONFIDENCE                           icaew.com
   SME Access To Finance

   What banks look for:


   3. Management Accounts and KPIs
   • How is business performing compared with past trends?
   • Up-to-date figures essential
   • Indicators of future trends such as orders, enquiries, etc




BUSINESS WITH CONFIDENCE                                          icaew.com
   SME Access To Finance

   What banks look for:


   4. Historic Trading accounts for 3 years
   • Trends in sales, gross margin, overheads, profits
   • Owners remuneration/ dividends




BUSINESS WITH CONFIDENCE                                 icaew.com
   SME Access To Finance

   Current situation re bank finance in the UK :
   • Banks are more risk averse and want greater visibility of
     business performance
   • Banks are seeking an open and honest relationship that
     can help resolve a business problems
   • Banks are now charging higher margins on interest,
     higher arrangement fees and monitoring costs
   • SMEs must understand their risk profile and how they
     might improve it
   • If refused finance appeal to a higher authority in bank


BUSINESS WITH CONFIDENCE                                       icaew.com
   SME Access To Finance

   Current situation re bank finance in the UK continued:


   • Be aware of what deals other banks might offer
   • Improve financial management such as reducing working
     capital, focussing on cashflow, etc
   • Consider raising more equity finance to supplement debt
     finance




BUSINESS WITH CONFIDENCE                                       icaew.com
   SME Access To Finance

   Raising outside equity:


   • Business Plan is the key and must be credible
   • Equity investors know the sector they are investing in
   • Essential you demonstrate that you know the market the
     business operates in




BUSINESS WITH CONFIDENCE                                      icaew.com
   SME Access To Finance

   The business plan must include:

   • An executive summary showing the capital required, the
     business idea & a summary of the profit and cashflow
     forecasts
   • A history of the company
   • Current and future products or services
   • Description of the market and sector, the marketing strategy
     and the sales and distribution process
   • Full details of the management
   • Detailed financial information
   • A risk analysis

BUSINESS WITH CONFIDENCE                                       icaew.com
   SME Access To Finance

   Issues for SMEs in UK
   • Appropriate mix of equity and debt finance
   • Cost of finance – interest rates historically low but likely to
     start rising in 2011
   • Greater emphasis on strong financial management
   • Good relationship with finance providers can help
   • Ensure an adequate supply of finance available for growth
     plans




BUSINESS WITH CONFIDENCE                                               icaew.com
                           A world leader of the
                           accountancy and finance profession




BUSINESS WITH CONFIDENCE                                    icaew.com

				
DOCUMENT INFO
Categories:
Tags:
Stats:
views:3
posted:6/26/2012
language:
pages:16
jolinmilioncherie jolinmilioncherie http://
About