Having to go ‘cap in hand’ to banks for money is quickly becoming a thing of the past for many small and medium sized business owners looking to grow their companies by “Scaling Up”.
Former Greencross Limited Chairman, Andrew Geddes, believes the future for Australia’s SMEs lies in Crowd Sourced Funding Equity Raising, which was legalised late last year, is now fully operational and has already seen ASIC-appointed Intermediaries raising over $31-million for 36 companies.
Mr Geddes says up until recently the small business sector has been at the mercy of banks, that usually insist on personal guarantees, or ‘angel investors’, who often want a disproportionate amount of equity in the company for their investment.
The highly experienced public company director says launching a Crowd Sourced Funding Offer is relatively cheap, when you compare it to the seven figure costs often associated with preparing an IPO for the stock exchange.
“Too many small companies have previously launched straight into an IPO because they have not had an alternative way to raise capital” Mr Geddes said.
Now with many small Australian companies having access to Crowd Sourced Funding, Mr Geddes believes there will be fewer small business IPOs, and far fewer small listed companies having to be dropped by the ASX for under-performance.
“I think by using Crowd Sourced Funding, many more companies will stay in private hands” said Mr Geddes. “They’ll have far more control, less cost and less scrutiny from institutional investors, proxy advisors and shareholders”.
Mr Geddes believes directors of all small and medium companies contemplating growth, along with their accountants and advisors, should take the time to learn the pros and cons of the new capital-raising process.
“A good place to start for both clients and accountants is by reading the research on the website of the accountancy information provider, ESS BIZTOOLS” said Mr Geddes.
In an interview with Peter Towers Managing Director of ESS BIZTOOLS a question was asked “In the scaling up process “cash” is identified as one of the key contributors to achieving growth – do you expect that Crowd Sourced Funding Equity Raising will emerge as a key contributor to supplying the “cash” that scaling up companies will require?”
Andrew Geddes answered “Yes, if you think about the sources of capital available for small businesses that don’t have cash they could go to a bank and obtain debt finance and you know the requirements that banks will expect. Then they might find angel investors or private equity investors who will want their “pound of flesh” in terms of margins or equity that they require.”
“Crowd Sourced Funding Equity Raising allows a company with less than $25 million annual turnover or asset value of less than $25 million to raise $5 million in 12 months – it’s much cheaper than an IPO – possibly a couple of hundred grand – but what is required is for the business in conjunction with its accountant to have analysed the financial statements by undertaking a review of current performance by having a specific series of regular meetings with the client to review the business’ performance: looking at revenue, who are our customers, where is the money coming from what is the average size in various products, service categories, is the product or service category growing or declining, what marketing strategy is driving sales?”
“You can then look at margins what are the associated margins on various sales of products or service categories so that you can look at where the profits are really made and decide whether marketing can be improved in any of these areas”.
“This means that the company’s development direction, its functional responsibilities the strategic initiatives, its focus and values should all be incorporated within the Budgets and Cash Flow Forecast that ultimately contribute to the development of the Business Plan which assists in the development of the Crowd Sourced Funding Offer Document which will be utilised to raise Crowd Sourced Funding”.
Andrew Geddes indicated that “this is a great discipline and it’s a good practice because if the company subsequently moves on to a larger equity raising either with private equity or an IPO they have done this exercise as a practice run and they should be much better off for it and therefore successful in the future. So, I think it’s a good step for smaller high growth businesses that are contemplating “scaling up” to raise that “cash” utilising Crowd Sourced Funding Equity Raising.”
Click here to access the recording of the interview between Andrew Geddes and Peter Towers.
Mr Geddes says he’s convinced that over the next two years, Crowd Sourced Funding Equity Raising will become the preferred way to raise capital for the SME business sector.
Contact: Andrew Geddes: 0407497 725
Contact: Peter Towers: 0418 190 181
Peter Towers | ESS BIZTOOLS