Access to Capital

Hello and welcome to 2006. We are certainly generating alot of interest and enquiry via our site here at AccesstoCapital so I hope you keep coming back and interacting on a regular basis. I would like to thank both Sylvia and Acland for their recent comments. We continue to watch the progress of the Dragon’s Den contenders and Acland was very kind to shed some “behind the scenes” light on the process.

We will be posting regular documents to the File Cabinet so make sure you know how to get in and how to access any of the documents. If there are things you would like to know more about then please contact us and we will be more than happy to help. Use the ClickCalling button and give us a free call from the site. ClickCalling is the commercialised product of Brisbane based company called NasComms and is going to be a global winner very soon.

So down to business. I recently had a high quality meeting with a prospective client and one of the issues that was referred to was: “But how do I know how much to ask for and how much my company is worth?” The only true answer to that question is: Let the Market decide!

There are so many different valuation models and these are mostly relevant to existing, proven businesses who can rely on at least 3 years of trading and can clearly identify what a financial growth model will look like for their business. But many small or new businesses do not/ can not facilitate this. So they have to rely on a great deal of judgement and a sense of market indication.

Investors are strange by their nature. That makes us all strange as we are all investors in one way or another. I know a property developer who will only operate in one state of the country no matter how good the opportunity is. If the market slows then he will simply sit tight instead of looking outside his given market to see what other markets might be moving contrary to the one he is in. That is part of the individual risk strategy and part of the valuation strategy. The investor is comfortable in that market and will dictate the price he pays based on his existing system and buying habits.

As a potential new business developer I asked the prospective client this question:
If I gave you $1million dollars over the next 12 months what would your business look like in 3 years time? This was a question that was able to elicit a very clear response. Based on that response we are able to develop a draft strategic growth plan and therefore develop a foundation stone that is fair and reasonable to offer an equity position in the market for the business idea.

Once this offer is then made to the market one of two things will happen: It will succeed or fail to attract investors. Now, as in any marketing excercise, you are testing the market and you can therefore change and adapt your strategy based on the feedback of the market. But you have to start somewhere and asking yourself that initial question will begin to help you find out how much you need for your business (your business plan needs to validate that amount) and how much it may be worth in 1-3 years time.

Now the technicians out there are going to challenge me on this statement but hey that’s what makes the world go around:
If you say to me: With $1million in my business today then we will be making $250,000 per annum in 3 years time Net Profit After Tax NPAT then I would suggest to you that the business is worth 10 times the $250K or $2.5Million. So $1million is worth giving up 40% of your business. But that is a guide only and any investor is going to ask you to validate and substantiate any figures you use based on your planning methodology.

So now that a stand has been taken I look forward to those comments and feedback that will help educate others about the process. For those that want to investigate the matter further I have enclosed a Valuation Guide by Ashley Gill in the File Cabinet.

Best of Luck for 2006

Regards
Andrew Winter

Andrew Winter is an Experienced Business Development Consultant specialising in helping companies grow through establishing and implementing sound capital raising strategies.

AccessToCapital has a range of experts available in Capital Raising and Business Development to assist growing businesses.