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business angel finance

Business owners often report that company finance of £10,000 to £250,000 can be very difficult to obtain - even from traditional sources such as banks and venture capitalists. Banks generally require security and most venture capital firms are not interested in financing such small amounts. In these circumstances, companies often have to turn to "Business Angels". Business angels are wealthy, entrepreneurial individuals who provide capital in return for a proportion of the company equity. They take a high personal risk in the expectation of owning part of a growing and successful business. Businesses Suitable for Angel Investment Businesses are unlikely to be suitable for investment by a business angel unless certain conditions are fulfilled. (1) The business needs to raise a reasonably modest amount (typically between £10,000 to £250,000,and is willing to sell a shareholding in return for financing. Equity finance of over £250,000 is usually provided by venture capital firms rather than business angels. The exceptions are when several business angels invest together in a syndicate or when business angels co-invest alongside venture capital funds. The sums raised can easily exceed £250,000. Raising finance in the form of equity (shares) strengthens the business' balance sheet. Banks (or other lenders) may then be willing to provide additional debt finance. (2) The owners and managers of the business are willing to develop a personal relationship with a business angel. This is important. Typically, business angels want hands-on involvement in the management of their investment, without necessarily exercising day-to-day control. This relationship can be a positive one for the business. A business angel with the right skills can strengthen a business by, for example, offering marketing and sales experience. (3) The business can, and is prepared to offer the business angel the possibility of a high return (usually an expected average annual return of at least 20%–30% per annum). Most of this return will be realised in the form of capital gains over a period of several years. (4) The business can demonstrate a strong understanding of its products and markets. Some business angels specialise by providing "expansion finance" for businesses with a proven track record, or in particular sectors. This enables an already successful business to grow faster. Business angels are also a significant source of start-up and early-stage capital for companies without a track record. A business plan based on convincing market research is essential. (5) The business has an experienced and professional management team - as a minimum with strong product and sales skills. If there are weaknesses in the existing management team, a business angel can often provide the missing skills or introduce the business to new management. (6) The business can offer the business angel the possibility of an ‘exit’. Even if the business angel has no plans to realise the investment by any particular date, the angel will want the option to be available. The most common exits are: - A trade sale of the business to another company.- Repurchase of the business angel’s shares by the company.- Purchase of the business angel’s shares by the company’s directors or another investor. Finding an angel Many contacts are made informally.For example: personal friends and family; wealthy business contacts; major suppliers and clients of the business. Investors can also be found by approaching formal angel networking organisations. Many of the most active business angels use these networks to find out about interesting investment opportunities. 0 nhận xét

Business planing

What is the Business Plan? The business plan sets out how the owners/managers of a business intend to realise its objectives. Without such a plan a business is likely to drift. The business plan serves several purposes:it (1)enables management to think through the business in a logical and structured way and to set out the stages in the achievement of the business objectives.(2)enables management to plot progress against the plan (through the management accounts)(3)ensures that both the resources needed to carry out the strategy and the time when they are required are identified.(4)is a means for making all employees aware of the business's direction (assuming the key features of the business plan are communicated to employees)(5)is an important document for for discussion with prospective investors and lenders of finance (e.g. banks and venture capitalists).(6)links into the detailed, short-term, one-year budget. The Link Between the Business Plan and the Budget A budget can be defined as "a financial or quantitative statement", prepared for a specific accounting period (typically a year), containing the plans and policies to be pursued during that period. The main purposes of a budget are: (1)to monitor business unit and managerial performance (the latter possibly linking into bonus arrangements)(2)to forecast the out-turn of the period's trading (through the use of flexed budgets and based on variance analyses)(3)to assist with cost control. Generally, a functional budget is prepared for each functional area within a business (e.g. call-centre, marketing, production, research and development, finance and administration). In addition, it is also normal to produce a "capital budget" detailing the capital investment required for the period, a "cash flow budget", a "stock budget" and a "master budget", which includes the budgeted profit and loss account and balance sheet. Preparing a Business Plan A business plan has to be particular to the organisation in question, its situation and time. However, a business plan is not just a document, to be produced and filed. Business planning is a continuous process. The business plan has to be a living document, constantly in use to monitor, control and guide the progress of a business. That means it should be under regular review and will need to be amended in line with changing circumstances. Before preparing the plan management should:- review previous business plans (if any) and their outcome. This review will help highlight which areas of the business have proved difficult to forecast historically. For example, are sales difficult to estimate? If so why?- be very clear as to their objectives - a business plan must have a purpose- set out the key business assumptions on which their plans will be based (e.g. inflation, exchange rates, market growth, competitive pressures, etc.)- take a critical look at their business. The classical way is by means of the strengths-weaknesses-opportunities-threats (SWOT) analysis, which identifies the business's situation from four key angles. The strategies adopted by a business will be largely based on the outcome of this analysis. Preparing the Budget A typical business plan looks up to three years forward and it is normal for the first year of the plan to be set out in considerable detail. This one-year plan, or budget, will be prepared in such a way that progress can be regularly monitored (usually monthly) by checking the variance between the actual performance and the budget, which will be phased to take account of seasonal variations. The budget will show financial figures (cash, profit/loss working capital, etc) and also non-financial items such as personnel numbers, output, order book, etc. Budgets can be produced for units, departments and products as well as for the total organisation. Budgets for the forthcoming period are usually produced before the end of the current period. While it is not usual for budgets to be changed during the period to which they relate (apart from the most extraordinary circumstances) it is common practice for revised forecasts to be produced during the year as circumstances change. A further refinement is to flex the budgets, i.e. to show performance at different levels of business. This makes comparisons with actual outcomes more meaningful in cases where activity levels differ from those included in the budget. What Providers of Finance Want from a Business Plan Almost invariably bank managers and other providers of finance will want to see a business plan before agreeing to provide finance. Not to have a business plan will be regarded as a bad sign. They will be looking not only at the plan, but at the persons behind it. They will want details of the owner/managers of the business, their background and experience, other activities, etc. They will be looking for management commitment, with enthusiasm tempered by realism. The plan must be thought through and not be a skimpy piece of work. A few figures on a spreadsheet are not enough. The plan must be used to run the business and there must be a means for checking progress against the plan. An information system must be in place to provide regular details of progress against plan. Bank managers are particularly wary of businesses that are slow in producing internal performance figures. Lenders will want to guard against risk. In particular they will be looking for two assurances: (1)that the business has the means of making regular payment of interest on the amount loaned, and (2)that if everything goes wrong the bank can still get its money back (i.e. by having a debenture over the business's assets). Forward-looking financial statements, particularly the cash flow forecast, are therefore of critical importance. The bank wants openness and no surprises. If something is going wrong it does not want this covered up, it wants to be informed - quickly. 0 nhận xét

Value of business

maximising the value of a business
Introduction
If an important financial objective of a business is to maximise the value of the business, how can this be achieved? The answer lies in the different approaches to valuing a business.
There are two broad approaches to valuing a business:
(1) Break-up Basis: this method of valuing a business is only of interest when the business is threatened with liquidation, or when management are considering selling off individual assets to raise cash;
(2) Market Value Basis: The market value of a business is the price at which buyers and sellers will trade shareholdings in a company. This method of valuation is most relevant to the financial objectives of a business.
When shares are traded on a recognised stock market, such as the Stock Exchange, the market value of a business can be measured by the share price.
When shares are held in a private company, and are not traded on any stock market, there is no easy way to measure value. It becomes a subjective judgement on behalf of both the buyer and seller about factors such as:
• Future profits and cash flows that the buyer can expect the business to deliver;
• The “intangible” quality of the business, including the quality of management, products etc.
• The strategic position of the business – e.g. is it a market leader?
Nevertheless, the objective remains for management – to maximise the wealth of their ordinary shareholders.
The wealth of shareholders in a company comes from:
• Dividends received:
• Market value of the shares
A shareholders’ return on investment is obtained from:
• Dividends received;
• Capital gains from increases in the market value of his or her shares
If shares in a business are traded on a stock market, the wealth of shareholders is increased when the share price goes up. The share price will go up when the business makes additional profits (or is expected by the market to do so) which it pays out as dividends or re-invests in the business to achieve future profit growth. However, to increase the share price, the business should try to increase profits without taking business and financial risks which worry shareholders (thereby increasing their required rate of return). 0 nhận xét