1. SBSA SMEs Seminar 2010

3. Take-off or Finance Phase 6 Months Survival or Cash-flow Phase Start-up Phase The different stages of business 1 - 2 Years2 - 5 Years Can I deliver my products? Can I expand my customer base? Do I have enough money? Need to learn how to run a business, how to develop and execute a business plan, how to access finance Understand operating ratios of industry Manage expenses Increase sales Cash flow needs to be enough to cover costs and to grow the business How do I grow? Grow using cash from the business or borrowed money? How do I go about borrowing money?

4. Sources of Funding your business Personal Savings Primary source for most business world wide Family & Friends Often cheapest source because it is loaned at a low interest rate, which is beneficial when getting started Make sure they know what they are getting into – they have to know the risks Bank Finance Most likely source of borrowing apart from family You have to be able to show that your business is viable and bankable – Business plan and cash flow projections Management need to convince bank that it has the skills and expertise to manage the business risks Equity Finance Mostly for growing or expanding business Disadvantage: you have to give equity or partial ownership Criteria: 1. Experience and abilities of owner/management 2. Industry, products and services offered or market opportunity 3. Growth of the business 4. Return on Investment Loan Originators Helps prepare loan application Submit loan to all banks and other financial institutions simultaneously Analyse proposals received and advises Franchisee on the merits of each Introduce Franchisee to Relationship Manager

5. General Lending Solutions Lending Solution What you need the money for: Over- draft Business revolving credit plan Medium term loan Business mortgage Debtor finance Vehicle & Asset Finance Working capital: Cash Working capital: Stock Office Equipment Plant and other equipment Fixtures and Fittings Vehicles Other second hand assets Property

6. What does a bank look at when assessing applications? Financial criteria Owner’s contribution to the business Realistic projections Ability to carry and repay debt Assets in the business Management Profile of the owner/jockey Management, financial and marketing skills Technical skills and qualification Environmental Viability of the business Risk associated with the industry Location Competition Barriers to entry Security/Safety Tangible collateral (real assets) Intangible collateral (future cash flows) Personal assets of owners

7. Information required when applying for finance Business Plan Financial statements of the business Personal statements of assets and liabilities for all owners Projected income and expenditure Cash-flow forecast Amount and source of owner’s contribution to the business Details of proposed collateral

8. Business is unsound, risk is too high, bank cannot determine risk – business is not sustainable (70%-80% of all new businesses fail in the first two years) Lack of owners commitment, often indicated by his/her contribution to the business Business plan does not provide adequate information Purpose of the finance required is not justified Character or suitability of owner Passive investment – owners not involved in the business Insufficient security or lack of collateral when risk is deemed high Reasons loans are declined Business Plans – see www.standardbank.co.za >Business>Starting a Business>search “Business Plan”www.standardbank.co.za

9. Ingredients for a financially successful business Profitability Sufficient margins Sustainability Profitability Sufficient margins Sustainability Stability Sound balance sheet Track record Stability Sound balance sheet Track record Cash flow Working capital cycle Breakeven Margin of safety Seasonality Cash flow Working capital cycle Breakeven Margin of safety Seasonality Return on Investment Mutually beneficial Pay back period Return on Investment Mutually beneficial Pay back period Debt structure Debt: equity ratio Working capital Capital expenditure Affordability Debt structure Debt: equity ratio Working capital Capital expenditure Affordability Transferable value Retained equity Future profitability Transferable value Retained equity Future profitability

10. Managing your cash flow Budgets and budgeting A budget helps you to keep an eye on the future while tracking past performance. Financial statements Financial statements provide you with the information you need to measure your business’s success and to make sound financial decisions. Bookkeeping chores Bookkeeping is an administrative task which requires daily attention and helps you to stay on top of your finances. Proper invoicing Proper invoicing will assist your business to receive payment from clients and keep track of outstanding payments. Collecting debt Late payments and bad debt can create cash flow problems for your business. Poor cash flow management is one of the major causes of failure in small businesses. It is important to establish good practices which will assist you in managing your cash flow effectively and will help you to ensure your business’s financial health:

11. Improving your cash flow Don’t buy excessive volumes of stock or inventory if there is not a good business reason for doing so. Keep overheads or expenses to a minimum. Improve suppliers’ payment terms. Arrange an overdraft at your bank that you can use in an emergency situation. This may just be the life line that is needed to help your business cover a lapse in cash flow for a short period. Manage your debt effectively. Improve debtor collections and reduce debtor terms Improving cash flow is not a ‘once off event’ but rather a way of doing business There are a number of ways to improve cash flow within your business…

12. THANK YOU QUESTIONS “If you're not appearing You’re disappearing” legendary jazz musician, Art Blakey

13. Thank You