The Language of Small Business Texts and Vocabulary Training (for students of Economics) Part 2. Учебное пособие

Raising the Money

in gold or whisky. There are special rules to restrict the amount of tax relief for investing in companies whose net assets are mainly land and buildings.

You may find that, because this tax relief is available, you can sell the shares in your company at a higher price than you would otherwise be able to do.

There are various categories of businesses who will not be able to use the scheme:

−you can only use the scheme if you are a limited company, so if you are a sole trader or partner wanting to raise funds, you cannot do so. You may still be able to find people willing to put up funds, by referring to the small ad section or through organizations which operate as brokers;

−the scheme will not be much use to you if you want to raise money in a rush. Negotiations can take months – as many as nine in the extreme;

−the tax relief is only for ordinary shares, so if you need to raise money through a mixture of ways, such as shares, preference shares or loans, a BES approach will not be suitable.

VENTURE CAPITAL FUNDS

There are over a hundred venture capital funds in the UK, with the money put up by pension funds, insurance companies, banks, investment trusts, industrial corporations, regional development agencies and private individuals through the BES Scheme. Not all of the funds will provide money for people who are starting up; most only provide funds for businesses which are expanding.

Venture capital funds are looking for companies with very good management, operating in a market which is either very large or is growing fast. The funds want to invest in companies which could reach profits of £300,000 or more within three to four

51

The Language of Small Business

years. Many, but not all, want to be able to sell their investment in five to ten years and hope that the company will have grown enough in that time to be floated on the Unlisted Securities Market or be sold to another company. This would allow the funds to sell their shares and turn their gains into cash.

If you approach a venture capital fund, the things to look out for are:

−amount of shares: the fund will normally want ordinary shares in return for the investment, as well as loan capital or preference shares, though there are exceptions. The percentage of shares varies from fund to fund; a few may want over 50 per cent, but it is unusual for a fund to want a majority stake in the company. The percentage of shares is not always affected by the amount of money you want to raise nor by the voting structure;

−board director: the fund will usually want to have one or two directors on your board and you will have to bear the cost of this. You will normally be able to approve the choice of director. The fees for a non-executive director can be in the £5,000 to £10,000 range;

−due diligence: this is the term for the investigation which a venture capital fund will want to undertake before investing in your company. This can include visiting your offices and other work location, taking up references from customers, potential customers and past employers, studying your accounts and selling systems, having your product checked technically and so on. The fund will want you to pay for this investigation; you can negotiate on this. How successful your negotiation will be depends on the level of interest shown by other funds;

−legal and professional fees: there are yours and theirs. You will have to pay the legal costs for the funds on top of all your cost for raising finance.

You will have legal and accounting fees, running into several thousands, plus the fee paid to a corporate finance adviser, usually

52

Raising the Money

based on a percentage of the money raised. In total, your share of the costs could run up to 5 to 10 per cent of the money you raise;

− syndication: if you are trying to raise a very large sum of money, a venture capital fund may want a partner or two to provide the funds you wish. This may be because providing the amount of money you want could take up a fairly hefty chunk of the total money they have to invest or they may just want to spread the risk. You may have to do a lot of the work yourself to bring together funds into a consortium to provide the money. This can prove very tricky and adds considerably to the amount of time it can take you to raise the money.

Finding a fund

Funds come in all shapes and sizes. At any one time, you will find that some funds are rolling in money, while others have none to invest just then. They also have different monetary limits on the investments they will consider. Some funds specialize in a region or an industry; others are quite catholic in what they are looking for.

There are two quite different approaches to finding a fund. One approach is called the scattergun; you send off your proposal to as many funds as you can. This is often criticized on the grounds that funds do not want to compete against each other for good prospects, and so will not be interested if they know they will be competing against too many others.

The other approach is to select two or three funds, who have money at that time and are interested in your sort of business. If these do not work out, you can send your plan to a second tier of funds and so on. This approach can equally be criticized on the grounds that if the funds are not in competition with each other, you will not get the best possible financing terms that you could and the whole process could take longer.

53

The Language of Small Business

THE PRESENTATION: HOW TO DO IT

There are a lot of useful tips on how to present your plan scattered through this chapter. The step-by-step guide below draws all these tips together:

1.First impressions are all important. The first thing prospective lenders and investors will see is your business plan. It must be typed, clean, neatly arranged in a folder. It should look comprehensive without being over-detailed, not more than ten or twenty pages, but, if necessary, information can be put in appendices.

2.Practise your presentation of your plan. Do this by getting a colleague or friend to role-play or see if a counsellor at an enterprise agency will take you through it. If necessary, approach a source of finance which you regard as very low chance and use it to perfect your technique for those opportunities of which you are very hopeful.

3.The next step will be a face-to-face encounter. Look conventional; the people who have money to lend are middle-of- the-road types, so do not endanger your chances of getting the money by dressing in an odd way.

4.Get the facts at your fingertips. Your plan may look good, but if you sound unsure or muddled about the details, doubts about your management ability may be raised.

5.Be clear in your own mind what is interesting or exciting about your proposal. Do not get so bogged down by the details that you cannot bring out the really important points of your business idea.

6.Find out the names and positions of those who can lend. Try to get the real decision-makers, not their advisers or subordinates.

7.Listen carefully to the questions and make sure you answer what you have been asked.

54

Raising the Money

8.If you are asked for any further information, make sure it is as well-researched and well-presented as the rest of your plan and provide it quickly.

9.Do not be too defensive about your idea; assume beforehand that it will be critically assessed.

The Language of Small Business

The Language of Small Business

Definitions of terms

Bank overdraft BKG an agreed sum of money which by arrangement a bank allows a customer to overdraw his account, i.e. to run into debt to the bank by drawing more than the amount standing to his credit in the account. The customer can make use of this money when he wishes, and for an agreed length of time. Interest is payable only on the amount overdrawn at the end of each day, but the bank may make an additional charge for agreeing to

59

The Language of Small Business

the arangement, and will usu. demand that the customer should deposit easily saleable stocks and shares as security for repayment of the debt.

Bank loan BKG an agreed sum of money lent by a bank to a customer for a fixed period, usu. 6-12 months, against an approved security. A special loan account is usu. opened on which the customer can draw cheques, and to which the interest on the whole sum for the whole period is debited, whether the customer draws or pays out the whole loan or not.

Return FIN the gain from an investment, either as income or yield or as profit on the sale of the investment.

Revenue FIN@ACCTS. (1) money received in the from of cash, cheques, etc. during a particular period. (2) in public finance, the income received by the State from taxation.

Working capital the stock of money needed by a business in order to keep trading or to carry on production. It consists of stocks and liquid resources (cash and things that can quickly be turned into cash); and it is equal to the difference between the current assets and the current liabilities. Syn.: circulating capital; floating capital; liquid capital; liquid assets. (USA) – current capital.

Venture capital, risk capital capital open to considerable risk of loss Cf. Security capital.

Stock market stock exchange; the business of dealing in stocks and shares.

Close company a company of which the sharecapital in held or controlled by five or fewer persons, or by persons who are all directors of the company. A close company must either pay out a large part of its profit as divident or be classed for tax purposes as a private person. Syn. (USA) close corporation.

Unlisted securities STK. EXCH. In Britain, securities that are not included in the official List of securities dealt in by members of the Stock Exchange. Syn. unlimited securities, unquoted securities. Cf. Listed securities.

60