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Thread: Re Financing - Acquiring more capital

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    Re Financing - Acquiring more capital

    Hey guys.

    I have run into the situation where I need more capital. I have extensively depleatedd my financial resources. Up to date my company ahs devoured only about R600 000,00, which I think is reasonable. I started trading in Feb 2008.

    Some months we make good money, other months not. I ahve not shown a true profit in the 3 financial years, but my turnover keeps growing, my company keeps expanding, and my plan is coming together... I am unfortunately quite broke, have about 200K on the debtors book (not bad debt, just project lifecycle debt), etc, and I am falling behind on keeping up with my financial obligations.

    What are my option? I have laready sold 20% shares (10% each to two managers). They approached me about a year ago and convinced me to sell shares ot them. It has wokred out gret and made sense, to ensure their loyoaly to the company. 90% of that shares money went directly into the business again. But as I said, I am broke, no more financial cushions, no more emergency funds, and I am falling behind on financial obligations.

    I am ideally looking to ahve someone invest a substantial amount fo money, that can help me forfill my long term plan. I don;t really want to sell any more shares, but I don;t realyl know how arrtracting an outside investor would work.

    I have looked at the angel investing network, but am a bit sceptical to pay the 2K upfront, and not knowing what I am getting...

    Any ideas, thoughts?

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    Apologies for the spelling. Fingers are colllllld and was typing to quick.... :-)

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    Site Caretaker Dave A's Avatar
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    What line of business are you in? In most situations, three years trading without a clear profit to show for it isn't a good sign.

    Optimism is one thing, but I've seen more than enough business owners gently wooed to their doom by an apparently growing business that just won't turn a profit. Or worse still (the ultimate seduction) a business that does show a book profit but just can't generate cash.

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    Diamond Member AndyD's Avatar
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    Quote Originally Posted by Fade-Dude View Post
    Hey guys.

    ....I have extensively depleatedd my financial resources. Up to date my company ahs devoured only about R600 000,00, which I think is reasonable. I started trading in Feb 2008.
    How do you come to the conclusion that the company devouring 600K in 3 years is reasonable. How much of this money is in real assets?

    Most reputable venture capital investment companies won't charge you 'up-front' fees. Unless you have spoken to someone who has had dealings with this particular outfit then I would be suspicious as well.
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    Thanks for your reply guys.

    Regarding the 600K.

    That includes initial setup, equipment and furniture, signage, branding, advertising etc.

    Look, some months we stick 80K profit, other months we make -20k... the nature of my business end up with us having project lifecycles that can stretch months. So its really dofficult to measure. Its not buy and sell...

    Anyhows, my long term goal is to build my recurring income to the point that it reaches my overheads. This is whats eating my capital... we are working with such small amounts recurring wise, that it takes ALOT of money to get it... but once we have it, we'll have it indefinately.

    As of now I have reached about 40% of my overheads. It has taken lots of work, blood, sweat and tears...

    I basically need a kick to accelerate my recurring growth, as nto to stagnate... I can limp along as is, but it will take me alot longer to grow my recurring...

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Fade-Dude View Post
    Anyhows, my long term goal is to build my recurring income to the point that it reaches my overheads. This is whats eating my capital... we are working with such small amounts recurring wise, that it takes ALOT of money to get it... but once we have it, we'll have it indefinately.
    Aah - now there's a situation I can relate to.

    Here's the problem with accountants - left to their own devices they will draw up your financial accounts to be as tax efficient as possible. And most times business owners cheer them on. Who wants to pay any more tax than they have to, right?

    Unfortunately in circumstances such as these it can mean that the financials do not fairly represent the value that is being built in the business. What should happen is those high capital costs should be amortised over the expected period of the return. Normally this would be the period of the initial contract. Exactly how this would be done depends on the nature of those capital costs and the contractual relationship you set up with your clients.

    If it isn't done right, your financials will look terrible and you're going to have major problems accessing finance. Done right, you'll have financiers knocking on your door to get in on the action, and at very reasonable rates if the contracts are secure and you've got a good track record.

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    Gold Member Martinco's Avatar
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    Dave,
    This is so true !!!
    If you figure on owning the business for 100years and you have the capital, yes then go the low tax ( Bad Financials ) way. But if you have to go the "borrow from the bank" route then the "true" financials is the right way to go, and when it comes time to sell the business then you reap the sour grapes of the low tax route.
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    So I should be shopping for a new accountant? Maybe rather a CA?

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    Site Caretaker Dave A's Avatar
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    I don't know. What's your relationship like with your current accountant?

    Although the GAAP issues are a little more complex, a qualified accountant is certainly up to the task. Usually the problem is the mandate they're operating under.

    Most small businesses don't need this level of financial reporting sophistication. If you see your accountant as someone to deal with tax and see you past the regulatory compliance needs of a CC, that's what you are going to get. And the accountant typically has his or her eye on how much tax they can save you to help justify their fee in your eyes.

    I would be remiss to point out that merely applying more complex financial reporting methods isn't going to do much on its own. Businesses like these also need more sophisticated strategic management if they are to succeed. As it is, there are cashflow implications with capitalisation and you're in a situation where the cash flow has already been heading the wrong way.

    Your goals are good, but given the cash flow trend so far, I suggest you should also take a look a closer look at your margins and structure. All the change in financial reporting is going to do is give you more accurate information on what is really going on.

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    Email problem Johann D Landsberg's Avatar
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    I agree with Dave. Accurate and timely reporting is important, but I would rather focus on cash flow management. This will include looking at the current margins.
    This is also a good time to revisit strategic goals. Can you change your focus somewhat to generate more monthly income while maintaining your drive to build up the recurring income?
    Take a critical look at your overheads; saving on your overheads will also ring you closer to your goal of 100% of overheads covered by recurring income.
    Cash flow is king; any lender will firstly look at your ability to repay the loan, before considering any financing options.

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