Finance

In a recent newspaper interview, the managing director of an investment banking organisation with special interests in servicing the family business sector, made the following points:

•       All businesses need to raise capital to allow proper growth and expansion.

•       There can be specific problems when there is no clear differentiation between the family and the business.

•       They need to get themselves investment ready.

•       The process is to have a proper set of accounts and proper corporate governance in place - that is separate personal, business and formal board meetings.

•       The business plan needs to be an active program for business, now, and for the future.

•       They need to think about whether they will retain earnings, get more money from the family, or borrow from a bank.

•       The business will need to have all these things in place, otherwise no outside person will put money into the company and if the business is going to get money from the family or internally, there can be problems if things are not structured properly.

•       ... it is important to have the formal structures in place and set out a plan of what needs to be done to promote growth.

•       The business needs to live up to the business plan.

•       Use up all the available capital from family and friends, then borrow from a bank, and after that go outside for capital ... an angel.

•       The main thing is if the business is going to be successful in the long run, then the most expensive price you pay for capital is equity.

•       Where a business is paying in equity it is better to raise it later than sooner. Then you can raise more money by selling less of the company when you are more successful, using the price earnings ratio.

•       Many people have not separated family interests from the business. Families must look on the business as an investment, not as an employer for family members.

"The loss was a result of an egomaniac that refused to compromise or even recognise possible limitations to the market opportunity or to his talent!"

Angel describing one failed deal