Raising Capital: Lecture Nine

LECTURE NINE
RAISING CAPITAL
Raising Capital 1
9.0 INTRODUCTION: PREPARATION
Work out what you have to do before you

approach anybody for funding.
• Decide on how much money you need and
for how long,
• Develop your business plan and get your
financial projections right
• Get expert advice if needed
Raising Capital 2
9.1 SETTING UP AN ONLINE SHOP
(CREATIVE COST CUTTING)
Of course in many cases you will need a fair
amount of money to get started.
However, not every business required a lot

of capital to set up.
One of the most effective means to finance

a small business is to make do with less.
Raising Capital 3
For example, if your initial proposal call

for GH ¢ 15,000 you probably can cut
this down substantially by reducing
spending on non essential items .
Some of the ways to this include:
Raising Capital 4
1.Using your home, if possible: Not having

to pay commercial rent and rates will help
you keep your overheads down.
2 Use what you have got : If you already

have a PC, use it to begin with. Only buy
something if there is a compelling
business reason to so.
Raising Capital 5
3. Become a borrower: Friends, family
and people you know through work
might be able to help you out.
4. Rent and buy second goods:

(furniture, equipment's, decorative
accessories etc) If you finally need an
office
Raising Capital 6
9.1 SETTING UP ON A SHOESTRING
5. Look for opportunities to barter: if

you are a mechanic, you could offer
to service a graphic designer’s car in
return for leaflets.
6. Find the right and the cheapest

suppliers
Raising Capital 7
9.1 SETTING UP ON A SHOESTRING
7. When buying face to face, try to

bargain the price down and only buy
goods that meet the specifications
you really need.
9. Use available support networks
Raising Capital 8
9.2 COMMON MONEY SOURCES TO
START OR EXPAND A BUSINESS
• Self-funding
• Friends and family
• Trade Credit
• Selling Equity
• Bank Loans
Raising Capital 9
9.2 COMMON MONEY SOURCES TO
START OR EXPAND A BUSINESS
If you’ve been in bus for 3 or more years

and can proof profitability a whole new
world of financing options will be there
for you
Raising Capital 10
9.3 SELF-FUNDING
Most small businesses start on a modest

scale; owners use their savings, investments
and assets to help raise funding, including
• Cash at Bank;
• Cash from piggy bank
• Selling and refinancing of a house and
other valuable assets;
• Living Expenses deferrals
Raising Capital 11
9.3 SELF-FUNDING
Pros
• You get all the profits and retain control
• You don’t have any interest repayments or
loan charges (unless you re-mortgaged
your home)
• It demonstrates your commitment, which
can influence financiers at a later date
• You don’t have to convince others to invest
• If you’re using existing funds, you’re not
tied in to loan repayments
Raising Capital 12
9.3 SELF-FUNDING
Cons
• You may be using up cash reserves that
could be useful if your business hits a
rough patch.
• Assets used to raise money, like your
home are at risk if you don’t keep up
repayments.
• If you defer paying your bills and do not
catch up fast you may damage your credit
rating.
• Limited growth
Raising Capital 13
9.4 TRADE CREDIT
Involves borrowing from companies from
whom you buy your merchandise and
raw material
Pros
• If you are in retail, wholesale or
manufacturing business, arranging for
trade credit can help considerably. In most
businesses you normally order for supplies
and pay for them in 30 to 60 days time
Raising Capital 14
9.4 TRADE CREDIT
Pros (Cont.)
• Some suppliers may offer extended
payment terms to get your business
Cons
• Some suppliers demands cash payment
upfront from start ups
The key to maintaining good relations with
suppliers while borrowing from them is
to keep them informed of what you are
doing
Raising Capital 15
9.5 FRIENDS AND FAMILY
This is a cost-effective way to get finance.
To fund a short-term cash flow problem

consider a loan. For a longer term solution,
consider giving them a share in your
business in return for investment.
You need to be honest with investors about

the risks, and should draw up a formal
agreement.
Raising Capital 16
A part from the commercial models a

Relative/friend can also lend you money at,
low interest rate, no interest at all or tell you
to treat it as a gift if you can’t pay back
Pros
• Family and friends are more likely to be
supportive of your idea
• The terms and conditions are usually more
generous than those of a bank
Raising Capital 17
Cons
• It can sometimes test relationships
• A loan from a relative or a friend that
comes with a lot of emotional strings
probably isn’t worth the cost.
It is important to think about what a business
reversal could do to your relationship before
getting money from a relative or a friend
Raising Capital 18
9.6 GOVERNMENT SUPPORT
Discretionary grants or concessionary loans
are available for some new businesses,
usually in specific industry sectors or
geographical areas.
Pros
• A grant does not have to be paid back
• Concessionary loans have low or zero
interest rates
Raising Capital 19
9.6 GOVERNMENT SUPPORT
Pros (Cont.)
• You don’t give up a share of your
business
Cons
• The application process can be long
• A grant typically only covers between 15-
50 per cent of your costs
Raising Capital 20
9.7 BANK LOAN
There are different types, for example:
• Secured
• and unsecured loans
Different payment systems
• Redoing balance
• Flat rate
• Base on economic conditions
Pros
• A clear repayment schedule means you can
forward-plan your cash flow
• You don’t give up control of your business
Raising Capital 21
9.7 BANK LOAN
Cons
• Banks can be reluctant to loan money to
start-ups with no business track record
• Your bank will probably required for
collaterals
• Interest payment can sometimes be a
burden if interest rates are high
Raising Capital 22
9.7 BANK LOAN
Some General Advice:

• Never finance with only borrow money,
even if possible
• Ideally borrow less than half of your capital
• Make sure you can handle the cash
payment necessary to repay
• Consider selling equity instead of
borrowing first
Raising Capital 23
9.8 EQUITY INVESTMENTS
An equity investor buys a portion of your
business and become a part owner and
shares in your profit when you succeed.
Equity investors put up money in return for a

share in a business. This means you don’t
need security and may not have to repay the
cash – investors hope to get their money
back, plus profits, either by selling shares or
through dividend
Raising Capital 24
For example: If an investor gives you
GH 5,000 for 10% stake this means he will
have 10% of your profit and 10% of the value
of your firm if it is sold. He could also sell his
stake at anytime for any amount.
Who to contact for equity investments:
• Family and Friends
• Private Entrepreneurs
• Business angles / venture capitalists
Raising Capital 25
Equity funding could be for you if:

• If You’re prepared to give up a share of
your business and its profits
• I f your business can support a significant
high growth rate
• If your products have a competitive edge;
• If your company has an effective
management team;
Raising Capital 26
• If you can provide some sense of security

for your investors.
• If you have an exit route for investors
• If the return on the investment is strong
• If your businesses match the sector
preference of the potential investors
Raising Capital 27
Pros
• You don’t have to make loan repayments
• You gain the contacts and skills of the
investors
Cons
• You will have to relinquish some control over
your company (and profits)
• They may look for a management track
record, so might not be suitable for new
businesses
Raising Capital 28
9.9 SPONSORSHIP
Sponsorship is payment by a business to an

arts organisation for the purpose of
promoting the sponsor's business name,
product, or services. This means that to be
able to secure sponsorship, you must be
selling an opportunity that fits in with their
branding or company image
Raising Capital 29
9.9 SPONSORSHIP
• Obtaining and maintaining sponsorship requires

time and effort.
• It can help you to broaden your financial base and
enhance your image, but is not a quick fix to
financial problems.
• Again, companies will have to be carefully
researched and sponsorship packages developed.
• It could also take up to 12 months before a deal is
reached
Raising Capital 30
9.10 MEETING YOUR BACKERS
1.Prepare a telephone pictch and book
appointments: --Avoid lengthy discussion.
• Simply set up a personal appointment,
• Mention two or three reasons for entring the
particular business,
• Note how much money you need and how
much you’re willing to offer your lenders or
investors
Raising Capital 31
2. Meet Your Backers
• Show up on time
• Be well prepared to answer any
question that might arise. If you can’t
handle a question, promise to find the
answer
Raising Capital 32
2. Meet Your Backers (cont.)

• Let your natural enthusiasm help you
explain your business idea fully.
• Talk about what the investment

would do for your prospect and
investors.
Raising Capital 33
2. Meet Your Backers (cont.)

-Bankers want to hear their loan will
be soundly secured and paid back
with interest without difficulties.
-Your relatives may be interested in
family solidarity, prestige of the family-
own business as well as making good
investment
Raising Capital 34
3. Ask for the money

4.Offer your backers a fair return, as
much security as you are
comforatable with and little rommance
5.Leave your plan with your
backers
6.Follow up
Raising Capital 35

Raising Capital: Lecture Nine

Uploaded by

Copyright:

Available Formats

Raising Capital: Lecture Nine

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Raising Capital: Lecture Nine

Uploaded by

Copyright:

Available Formats

LECTURE NINE

Work out what you have to do before you

However, not every business required a lot

One of the most effective means to finance

For example, if your initial proposal call

Some of the ways to this include:

1.Using your home, if possible: Not having

2 Use what you have got : If you already

4. Rent and buy second goods:

5. Look for opportunities to barter: if

6. Find the right and the cheapest

7. When buying face to face, try to

9. Use available support networks

If you’ve been in bus for 3 or more years

Most small businesses start on a modest

This is a cost-effective way to get finance.

To fund a short-term cash flow problem

You need to be honest with investors about

A part from the commercial models a

Some General Advice:

Equity investors put up money in return for a

Equity funding could be for you if:

• If you can provide some sense of security

Sponsorship is payment by a business to an

• Obtaining and maintaining sponsorship requires

2. Meet Your Backers (cont.)

• Talk about what the investment

2. Meet Your Backers (cont.)

3. Ask for the money

You might also like