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SBSA SMEs Seminar 2010

SBSA SMEs Seminar 2010. The different stages of business. How do I grow? Grow using cash from the business or borrowed money? How do I go about borrowing money?. Take-off or Finance Phase. Understand operating ratios of industry Manage expenses Increase sales

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SBSA SMEs Seminar 2010

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  1. SBSA SMEs Seminar2010

  2. The different stages of business • How do I grow? • Grow using cash from the business or borrowed money? • How do I go about borrowing money? Take-off or Finance Phase • Understand operating ratios of industry • Manage expenses • Increase sales • Cash flow needs to be enough to cover costs and to grow the business Survival or Cash-flow Phase • 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 Start-up Phase 1 - 2 Years 2 - 5 Years 6 Months

  3. Sources of Funding your business

  4. General Lending Solutions

  5. 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 What does a bank look at when assessing applications?

  6. 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

  7. Reasons loans are declined • 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 Business Plans – see www.standardbank.co.za >Business>Starting a Business>search “Business Plan”

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

  9. Managing your cash flow 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: • 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.

  10. Improving your cash flow There are a number of ways to improve cash flow within your business… • 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

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

  12. Thank You

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