2About Me – Garry Allsopp Currently I am the National Franchise manager for First Class Capital:My working background:Initially some 20 years in Corporate, Retail and Business Banking mainly with Regional Banks;Previously National Franchise Manager for Bank of Queensland;Successfully established and managed the Franchise/Sales team for Real Estate Investor.My current role:The accreditation of new franchisees;Support new and existing franchisees;Enforce the First Class Capital policies & procedures and ensure all franchisees operate within the Franchise Code of Conduct.
3BackgroundAlthough this is a start-up franchise comfort can be gained from knowing that First Class Capital is part of the First Class Financial Group Pty Ltd.First Class Financial Group Pty Ltd is the Master Franchisor of the First Class Accounts Franchise Network in Australia. In January 2011 a group of investors, led by Clive Barrett, saw the long-term potential of the bookkeeping services industry and First Class Accounts in particular, acquired the Master Franchise.The actual Australian Franchise operation began in 2000 in Queensland and today approximately 150 Franchises cover territories as far wide as from Perth to Cairns.
4First Class Capital - FCC In 2012 the First Class Financial Group in conjunction with its business partner, Prout Partners developed a new and innovated cash flow solutions sweep of products. Together these experienced industry participants have designed a unique business model which will appeal to an extremely large target market.This new cash flow solutions funding product range is being launched through the vehicle, First Class Capital under a franchise based distribution model.
5First Class Capital – Product Range First Class Capital provides lending based financial product solutions to Small to Medium Sizes Enterprises businesses (SMEs).These products, while having different features, all centre around the delivery of working capital and sales financing solutions.The sale of the First Class Capital product range will be carried out under a franchise based distribution model.
6First Class Capital – Product Range SPARC - Sales Plan and Receivables Capital.Our SPARC product allows Suppliers to offer up to 9 months instalment repayment terms to their customer and they still get paid up-front.Using SPARC allows Suppliers to offer their customers a choice of- Pay now;- Use SPARC and pay later in regular agreed instalments.
7First Class Capital – Product Range Pay PlanOur Pay Plan product allows Buyers to pay their current or future invoice from Suppliers by instalments over up to 9 months.Using Pay Plan allows Buyers to:1- benefit from negotiating more favourable pricing from their Supplier by paying for goods or services up front.2- free up cash flow by taking await that initial hefty payment for stock.Overall SPARC & Pay Plan offers a complete supply chain financing solution that can benefit a Supplier and a Buyer in the same transaction.
8XLR8R - AcceleratorAs the word describes, allows customers to accelerate their payments on work completed but not yet paid.This soon to be released product is based around Invoice discounting and will allow customer to receive immediate payment on invoices.Once the structure of XLR8R is finalised you as a FCC franchisee will gain the financial benefits from being allowed to sell this additional product.
9The MarketplaceFirst Class Capital product range offers innovated trade finance solutions for trading partners.The size of this marketplace is immense – the last census showed that there were 2,051,085 actively trading business in Australia, around 96% were small businesses.The opportunity to sell the FCC product range to small businesses is limitless and the best part is the above figures confirm there are amply of potential customers waiting to learn about FCC and the benefits it brings to SME’s.Selling is much simpler when a customer has a fundamental need for a product that will add value to a business.
10So what is put there now?Although the FCC product range is innovative the inherent structure behind the product is well established in the market.Conceptually similar to debtor financing:- debtor financing is offered by nearly all Australian Banks;- businesses like Bibby Finance & Scottish Pacific purely operate in this field;- In 2011 the Australian market was over $60 billion.Specialised business like Certegy, that offer retail payment plans- Harvey Norman and other retails outlets offer this service;- In 2011 Certegy facilitated over 130,000 sales.
11So what is out there now?Insurance Industry – now offer options, pay annually or monthly;Utilities firms – also provide payment options.Here we see that the offering of “repayment terms” is well established, reputable and accepted, however FCC opens a whole new opportunity business Suppliers.
12First Why First Class Capital Products? The FCC product range;Specifically caters for SME’s day to day business finance requirements, whilst other funders offer a broader product that needs to be re-designed to meet business funding conditions.Can be used to increase sales, unlike other funding products that are purely financed based.The funding provided to the 3rd party is undisclosed.Fees & interest charged by FCC are lower then what the industry charges.Limited documentation required combined with an automated processing system.
13First Class Capital Business The following parties are involved in a SPARC selling arrangement.The Supplier/Buyer (the borrower/FCC client) – representing the owner of a small to medium business that supplies good and services to the marketplace;The Customer (the debtor) – being the purchaser of good or services from the supplier and the person who repays the proposed facility;The Franchisee – will recruit and facilitate business operators to become a client of and utilise First Class Capital services;First Class Capital – provides the necessary finance to fund the transaction.SPARC , Pay Plan & XLR8R - name of the products to be sold.
14How does it all work?We lend money to a Supplier so they can offer their customers Instalment Payment terms and still get paid upfront. Supplier will:Create a sale & sign up a customer under a 2 to 9 months Instalment Payment Plan;Receive an upfront advance (80% of invoice less fees & charges);Receive the balance over Term of the Plan ( 20%);Pay monthly interest on the outstanding loan just like a typical overdraft facility.Customer makes instalment payment via Direct Debit.The funding role of FCC is undisclosed to the customer.There are cases where by a large part of the cost can be passed onto the customer.
15Working Example:Let’s view a working example of the SPARC product excluding the charging of fees & interest:Assume:The FCC client: John’s Paint Shop.The Customer to our client: Brad’s interior paints.Terms of sale Supply one pallet of paint.Invoice $10,000-00Term of Plan monthsFCC pays business $8,500 – representing 80% of invoice and ($2000 /4 =$500)$ 500 – after month 1$ 500 – after month 2$ 500 – after month 3Total received by business $10,000The Customer pays to FCC $2,500 – 1st instalment in advance.$2,500 – after month 1$2,500 – after month 2$2,500 – after month 3Total amount received by FCC $10,000
16Who is Sparc suitable for? SPARC is suitable for Suppliers who :Potential to grow sales however they are constrained by lack of capital;Could achieve additional sales by offering longer payment terms to Customers;Have reasonable (say 20%+) gross margins in their business;Operate in competitive industries where offering something different is important;Retain control over their Customers;Reduce the cost and stress associated with managing debtors;Are not credit impaired and will meet our Credit guidelines;Replaces more expensive forms of capital; orAllows the business to grow sales and earn a higher return than the cost of the debt.First Class Capital Group16
17Suppliers BenefitsThe benefits of the SPARC product to the Supplier are numerous:Easily explained to Customers; either pay in full now or pay over a scheduled timeframe.100% funding of debtor, providing access to funds normally tied up in receivables.Easy to use web-based technology;Increases business profits by taking on more business;Pay your creditors on time and take advantage of discounts;Promote your brand, not someone else’s – provides undisclosed funding;Lowers debtors collection costs – we do all the work for you;Fast approval;Automated processing system;Property not required as security.
18Customers benefits from Sparc Ability to pay for goods and services over time, rather than coming up with a large lump sum;Assists in budgeting repayments;Ability to choose payment frequency and payment terms;Customer signs one form once, no requirement for extensive information;Costs & FCC involvement are undisclosed to Customer;Availability of a Standing Payment Authority to streamline & simplify future payments
19Costs of Sparc & Pay Plan Service Fee: (Up-front fee) – 1.0 % of Standard Invoice X Number of Months of the Plan.Interest Payment: - Currently 8% based on the outstanding balance of the Plan. (represented by being 1% below standard business loan rates)Document Fee: – A payment of $70-00 per invoice to load onto the FCC System.Early Express Fee – Of 3% is in addition to the standard Up Front Service Fee.The sale should not be based around pricing, although competitive when compared to other industry participants, the real selling points are the benefits received by the supplier and their customer.
20The role of a Franchisee First Class Capital Franchisees will:1. Recruit (find) businesses to use the FCC product;2. Manage the relationship (interaction) between First Class Capital as the provider of funding and the Customer as the user of the FCC products;3. Provide part of (20%) of the Funding requirement subject to FCC’s credit guidelines;4. The minimum contribution will be $100,000;5. FCC will provide the Franchisee with access to leverage on a 4:1 basis. Under this scenario a Franchisee contribution of $100,000 will allow the Franchisee to write $500,000 of loans/payment plans, subject to FCC terms & conditions.6. Franchisee will maintain day-to-day control of their investment and be included in the loan approval process.
21Requirements of a Franchisee Australian citizenship, or permanent resident status;Integrity, honesty and a willingness to operate a successful business;Successful completion of all training requirements;Good credit record/credit history evidenced by prompt payment of all financial obligations;Entrepreneurial attitude, creativity and the ability to make sound business decisions;Ability to create and implement a comprehensive business plan;Ability to successfully execute First Class Capital franchise operational procedure;English language proficiency;
22Appeal of an FCC Franchisee Low initial investment.No heavy commitments.Minimal set-up costsLow overheads.Work the hours that suit you.“Kick-start” business launch and local marketing support. IPAD.Initial training in all facets of the business.Business planning and development.Access to your Franchise Support Manager.No territory boundaries.
23Franchisee Fee The business cost can be broken down as follows: 1. $20,000 + GST; franchise licence fee.2. $16,000 + GST; training , manuals, materials and software.3. $3,000 + GST; ‘Kick Start’ business launch program marketing material and iPad.4. $1,000+ GST; stationary.5. Franchisee FCC Plan Funding Contribution ( see later)The investment is payable as to $5,000 on signing of the Franchise Agreement and the balance of $35,000 prior to commencement of training.
24Franchise AgreementStandard Franchise Agreement & Disclosure Documents will need to be signed.Independent legal & accountant advise should be sought;Franchise – 20 yearsInitial term – 5 yearsRenewal Term – 3 further terms of 5 years. Renewal fee $2,000;IT levy – currently waived;Conference levy – currently waived;All fees plus GST.
25Your territoryFCC does not grant exclusive territories to franchisees. One of the benefits for you as an franchise will be that there will not be any geographical boundaries to your area of operation and you will not be restricted to any particular 'territory' in obtaining new business. However, this means that FCC also does not guarantee that it will not allow another franchisee in the same region or vicinity as your business.This means one franchisee does not have sole and exclusive rights to a single territory, i.e. more than one franchise may operate within that area. This should not pose a concern however, as the demand for the services of our franchisees shall likely most often outstrip supply. Furthermore, there are always new opportunities in all territories to capitalise on untapped markets and develop new client bases.
26MarketingMarketing/advertising Fee - $ p.m. The levy will commence in the fourth month after your business becomes operational. Optional to commence payment prior to the 4th month and levy will result in 5 face to face referrals per month.Marketing fees with go towards Brand Awareness and National Marketing Campaigns.Marketing campaigns can only be carried out within you allocated Territory;The expense for all local area marketing is to be met by the Franchisees.
27TrainingFranchisees are required to attend a 2 day in-house training program based in CBD Sydney.An amount of $1,000 per Franchise (not franchisee) is paid by First Class Capital to contribute towards expenses incurred by the Franchise representative in attending this training. Funds will be paid to the representative during training.Attending training is compulsory and apart from covering the characteristics and benefits of the First Class Capital product it covers basics such as business establishment, development and sales techniques.
28Franchise Ownership Structure The Franchise is to be structured as a corporate entity;Franchisee not permitted to be a Superannuation Fund;Full disclosure of interested parties ownership;Franchisees contribution will be via a Trust structure and documentation will be provided by FCC, such will need to be found acceptable and acknowledged by independent legal advise on behalf of the Franchisee;
29Responsibility for risk While you may view this as an exciting opportunity, being involved in any kind of business does have its risks. While FCC obviously provides assistance and support to its Franchisees, you will retain responsibility and liability for the success and viability of your business.FCC cannot give you any assurances or make any predictions in respect to matters such as the costs, loss of investment, revenue or future profitability of your business or the suitability of its location.As you will need to accept and manage these important risks, you should think carefully before becoming a Franchisee.Risk is mitigated via a operational Credit Policy and a Franchisee has to opportunity not to support the approval of a Payment Plan.
30Credit policyThe FCC Credit Policy provides the guidelines; criteria and requirements that the Franchisee, Supplier/Buyer and Customer needs to operate under. There are no exceptions here.All Plans are approved by National Office, based on the requirements of the FCC Credit Policies, however the Franchisee has the right not to support the funding of a Payment Plan. This is not to say the Plan will not be funded by another party.The Franchisee must remain mindful that they have a “Due Diligence” role when submitting Plans for approval and this covers the duty of full disclosure and capacity investigation into the business they are dealing with.
31Credit criteria – FCC Client A FCC client needs to be able to meet/provide the following to be considered for SPARC product:Minimum number of year in business (trading);Personal Guarantee from business owners;Minimum business turnover;Established NTA/Facility Size Ratio;Acceptable Operating Position & Financials;Clear Credit history.
32Credit criteria –Customer A Customer needs to be able to meet/provide the following to be considered for a SPARC product:Business Purpose- Minimum years in business;- Clear Credit history;Consumer – Property Owner;Concentration limits placed on lending and maximum exposure to one individual customer;Maximum Payment Term – 9 months
33Financial consideration Uncapped earning potential – fantastic financial rewards compared to other franchise offerings;Income well in excess of $100,000 can be earned in the first 12 months of the business starting;Limited lead in time to start generating income;Don’t need unpleasant task of unearthing 20 sales a week to gain a acceptable income;You will be helped in locating product users via a targeted direct response T V advertising;It’s so mush easier selling a product that small business owner are longing for;
34Return to franchisee The income position for the Franchisee is Trailing fee of 0.50% multiplied by the Invoice Amount, payable monthly over the term of the underlying Plan.Interest rate of 15% p.a. on Franchisee’s outstanding Funding Contribution payable monthly over the term of the underlying Plan.Loan Establishment Fee of $35-00 per loan advanced.A $7-50 p.m. fee is applied to each Payment Plan.
35Working Example - One $10,000 $8,000 6 monthly payments in advance 7% Invoice$10,000Loan Advance$8,000Term6 monthly payments in advanceInterest Rate7%Service Fee1% per month (6%)Monthly Loan Repayment$1,667Retention 20%$2,000
36Cost to FCC Client Advance to client – settlement SettlementMonth12345Advance to client – settlement8,000To client – retention fund (20%)3353332,000Total funds to client8,33510,000Less:Upfront Service Fees480Loan Establishment Fee70On-going Service Fees-24120Overdraft Interest47403216159Cost to client55071645648Net funds paid to client7,7852622692772852939,171
37Return to Franchisee Trailing Service Fee – 0.50% Month123456TotalTrailing Service Fee – 0.50%40.00240.00Trailing Retention Fee10.0060.00Loan Establishment Fee35.0015% p.a.25.0021.0017.0013.009.005.0090.00Less: Account Fee(7.50)(45.00)Total net Revenue102.5063.5059.5055.5051.5047.50380.00
38Fees, interest and charges When a Supplier is dealing business to business both Service Fee & Document Fee can be fully passed on to the customer. Full disclosure required.When a Supplier is dealing with an individual (non business entity) they cannot pass on the Service Fee or Document Fee.The FCC customer (supplier/buyer) is required to meet all interest payments.
39Working example – Two (Fees paid by different parties) Invoice$10,000Loan Advance$8,000Term4 monthly payments in advanceInterest Rate1% p.a below standard bank rates say 5%Service Fee1% per month (4%)Monthly Loan Repayment$2,500Retention 20%$2,000
40Service and Application Fees Paid By Supplier Fees and charges – Supplier paysStartSettleMonth 1Month 2Month 3TotalService and Application Fees Paid By SupplierCustomer Pays2,50010,000Service Fee35229440Application Fee77Interest Charges32211164Supplier Receives After Fees And Interest7,5716056166279,419Total Cost To Suplier5.81%
41Service And Application Fees Charged To Customer Fees and charges – Customer paysStartSettleMonth 1Month 2Month 3TotalService And Application Fees Charged To CustomerCustomer Pays2,63510,541Service Fee37131464Application Fee77Interest Charges34231168Supplier Receives After Fees And Interest7,9856386496619,932Total Cost To Supplier0.68%
42Returns Passive or Active In assessing the potential income you need to consider if you will:Passively manage the loan portfolio. Meaning you write new loans after old loans are fully repaid; orActively manage the loan portfolio. Meaning you write new loans as old loans reduce (amortise).An actively managed loan portfolio will return higher income to the Franchisee.A full demonstration of the above is shown later in the presentation.
43FCC Franchisee example Assume:1. Franchisee initially signs up 6 business operaters. (clients).2. Each business requires funding of 5 Payment Plans per month.3. Each Invoice is for $15,000. Each loan advance is $12,000 (80% * $15,000)4. SPARC term of repayment 4 months.5. Franchisee Capital Contribution $100,000 .6. Total capital available to Franchisee $500,000In assessing the potential income you need to consider if you will:Passively manage the loan portfolio. Meaning you write new loans after old loans are fully repaid; orActively manage the loan portfolio. Meaning you write new loans as old loans reduce (amortise).An actively managed loan portfolio will return higher income to the Franchisee.
44Returns – Passive or Active Outcomes:1. Passively Managed: 168 Plans Per Annum2. Actively Managed: 351 Plans Per AnnumServices Income Per Plan: [0.50% (p.m.) x 4 (months) x $15,000 (Invoice)] + $35 = $335Interest Income: 15% p.a on Franchisee FundsRange of Outcomes:IncomePassively ManagedActively ManagedService Fees$56,280$116,340Interest$ 7,405$ 14,652Total$63,685$130,992% Return on Capital46% p.a93% p.aPayback Period on Franchisee Investment0.7 years0.3 years
45The funding platformCreates, schedules and processes Payment Plans automatically;Comprehensive dashboard allowing the Supplier to view status of their facility at any given point in time;Allows forecasting cashflows for future payments;Extremely flexible allowing Supplier to manage each customer relationship on an individual level;Delivers the Franchisee with full control and transparency of their loan portfolio;Provides automated notifications for late payment, overdue invoices and automatic re-scheduling of defaulted payments.
46Reporting Requirements Minimal to nil;Automated funding platform takes away the paper work;Quarterly Compliance Reviews;Half yearly business reviews – determine how you are performing.
47Operational trustGiven the structure of the FCC business model, the franchisee will be required to contribution minimum funds of $100,000.Franchisee will be included in the loan approval process.FCC will provide the Franchisee with access to leverage on a 4:1 basis. Under this scenario a Franchisee contribution of $100,000 will allow the Franchisee to write $500,000 of loansFranchisees contribution will be used first, future leverage (as above) will only apply against performing Plans and remaining balance of funds held in Trust A/c
48Trust Entities Involved There are 7 entities (trusts) in the transaction:First Class Capital Pty Ltd: Franchisor:Transact Payments Pty Ltd: provisions of services to FCC clients under Loan Agreement;Operating Trust:- For each Franchisee, a trust which will enter into Facility Agreements with FCC clients.- Will raise capital from the Franchisee:- Will raise secured senior funding from the Financing Trust:- Trustee will be First Class Capital Trustee Services Pty LtdFinancing Trust:- A Trust established to raise senior funding from a 3rd party.- Trustee will be Australian Executor Trustees.Security Trust:- Trust to hold Fixed and Floating Charges over assets of Operating Trust(s).First Class Capital Holdings Pty Ltd: Holding company of Transact Payments, First Class Capital etc.First Class Capital Trustee Services: Act as Trustee of the Operating Trust.
49Operating trust structure Funds contributed by the Franchisee will be managed via a Operating Trust Structure;The Trustee will be First Class Capital Trustee Services Pty Ltd;The Franchisee maintains day-to-day control of their investment;The Franchisee will provide the Trustee with a standing consent to draw down funds from the Operating Trust Bank Account to:Release funding against their own discrete loan pool;Apply loan repayments in accordance arrears/default policy (see later):At all times act on the instructions of the Franchisee subject to such actions not causing a breach or default of the Loan and Charge Documents;Ensure the collection of funds;Consent able to be withdrawn.
50Arrears / Default Policy Personal Guarantees are to be provided by FCC client;FCC client need to meet a strict lending guidelines;Simplistically there is the possibility that all monies contributed by the Franchisee are subject to loss, if a Customer defaults on the repayment of the Plan and the FCC client does not honour the signed personal Guarantee;When a customer defaults after 3 failed attempts to generate payment no new settlements in relation to that customer will be allowed and no new settlements for a FCC client where more than 20% of that FCC client customers are in arrears will be allowed;When arrears occur, all amounts otherwise payable to a Franchisee for a Franchisee Loan Pool will be directed into a Suspense Account. Also all FCC clients retention funds not paid will be placed in a Suspense Account.
51Arrears / Default Policy Recovery is carried out through the following structure:Re-coursed to related FCC client; if not fully recovered then;Set-off against the FCC client Retention in other Customers collections relating to the FCC client; if not fully recovered then;Set-off against Franchisee Payments and any undistributed funds held in the Operational Trust; if not fully recovered then;Set-off against FCC revenues.
52Arrears / Default Policy Amounts recovered in a subsequent period are allocated (repaid) to the parties in the following order: 1st – Senior Lender P & I;2nd – First Class Capital;3rd – Franchisee Capital;4th – FCC clients Retentions.A Franchisee can endeavour to recoup a loss by seeking payment from the FCC client under the Personal Guarantee held and employing Mercantile Agents to pursue the debtor via the assignment of the Payment Plan receivable.Selection of the right FCC client and carrying out sufficient due diligence will elevate any future financial loss.
53In ConclusionFCC has a great product - unique in the market place – little competition;Presents an exciting opportunity for a franchisee by providing flexible working hours, minimal set-up costs and low overheads;Uncapped earning potential – fantastic financial rewards;Short lead time to become fully operational;Full support from First Class Management;No territory boundaries.
54Next Steps - Accreditation Process Return Franchise Accreditation Form with CV and Privacy Consent;Return sign copy of Expression of Interest letter with Fit & Proper questions;Start Crime Check;Provide names of Referees;Accreditation Manage will remain in contact with you during the above process;Accreditation received;Attend training in Sydney.