Dr Noor Muhammad

noormuhammad@giki.edu.pk

1.

To understand various sources of finance for a

business.
1.
2.
3.
4.

2.

Banks
Angel finance
Venture capital finance
Crowd funding

Main financial highlights

Seed

Young

Growing

Mature

Stock market
Institutional investors
Retained profits
Venture capital
Banks
Informal investors
Family/friends
Own capital

Deakins and Freel (2009)

1.

Can be easily secured.

2.

Short-term and traditional loans.

3.

You control your business.

4.

However, loan applications are difficult to assess.

5.

Borrowers and lenders have conflicting interests and

information.

6.

Adverse selection

7.

Moral hazard

1.
2.
3.
4.

5.
6.
7.

The amount
Purpose and duration
Repayment plan and source
Security/collateral
Commitment (owners contribution)
The people
Profitability (for the bank)

Paul Burns (2007)

Character
Ability
Management
Purpose
Amount
Repayment
Insurance

The 5 Cs of Credit Analysis

1. Capacity to repay
2. Capital invested
3. Collateral offered

4. Conditions of loan
5. Character impression

1.

High net worth individuals.

2.

Increasingly important source of funding for small firms.

3.

UK Business Angels invest up to 1 billion annually.

4.

Make an average of two investments every three years.

5.

90 percent are satisfied with their investments.

6.

They provide not only finance but experience and business skills.

7.

Business Angels invest in the early stage of business.

1.

Invests in specific industries.

2.

Buys between 20% to 40% of a company but

in some cases will buy up to 70% or even
more.

3.

Long range funding (5-10 years).

4.

Bridge funding between the entrepreneurs

personal sources and the stock market
floatation.

What Do Venture Capitalists Look For?

1. Intangible factors
2. Competent management

3. Competitive edge
4. Growth industry
5. Viable exit strategy

1.

A new form of funding started in 2009 in USA

(http://www.kickstarter.com/)

2.

Brings together people with business ideas and

people with money

3.

This model looks like e-bay where buyers and

sellers can interact with each other under set
rules and regulations

11

1.

Forecast Turnover

2.

Forecast Cash Flows

3.

Forecast Profit & Loss Account

4.

Funding requirements (start-up costs)

Sales =
Minus Variable Costs:
Materials
Wages =
Other =

Rs

(A)

Rs
Rs
Rs

Total Variable Costs:

Rs
Gross Profit/Contribution: Rs

(B)

Fixed Costs (Overheads):

Wages/salaries (including taxes) =

Rent =
Heating/light/power =
Rs
Advertising =
Insurance =
Transport/travel =
Phone =
Rs
Stationary =
Maintenance =
Depreciation =
Local taxes =
Other =
Rs

Total Fixed Costs =

Rs
Rs
Rs
Rs
Rs
Rs
Rs
Rs
Rs

Rs

(C)

Net Profit =
Minus dividends =
Rs
Profit retained in the business =

Rs
Rs

Break-Even = Total fixed costs x Sales

Gross profit
CxA
B

PETERS AND CO - CASHFLOW YEAR 1

JAN

FEB

MAR

APRIL

MAY

JUNE

JULY

AUGUST

SEPT

OCT

NOV

DEC

TOTALS

INCOME
CAPITAL

0
30000

0
0

1000
0

2000
0

3000
0

3000
0

3000
0

8000
0

8000
0

8000
0

12000
0

12000
0

60000
30000

TOTAL INCOME

30000

1000

2000

3000

3000

3000

8000

8000

8000

12000

12000

90000

EXPENSES
DRAWINGS
HEALTH INSURANCE
NHI PAYMENTS
STAFF COSTS
OVERHEADS
RENTAL ITEMS
FURNITURE
CARS
TRAVEL
HARDWARE
SOFTWARE
PI COVER
MARKETING
BROCHURE
VAT (REBATE)
INTEREST/CHARGES

6000
90
677
0
1142
3963
2000
1000
333
270
608
4500
333
1500
0
0

6000
90
677
0
1142
0
0
1000
333
270
608
0
333
0
0
-303

6000
90
677
0
1142
0
0
1000
333
270
608
0
333
0
0
0

6000
90
677
0
1142
3963
0
1000
333
270
608
0
333
0
-4029
0

6000
90
677
0
1142
0
0
1000
333
270
608
0
333
0
0
467

6000
90
677
0
1142
0
0
1000
333
270
608
0
333
0
0
0

6000
90
677
0
1142
3963
0
1000
333
270
608
0
333
0
-2629
0

6000
90
677
0
1142
0
0
1000
333
270
608
0
333
0
0
1449

6000
90
677
0
1142
0
0
1000
333
270
608
0
333
0
0
0

6000
90
677
0
1142
3963
0
1000
333
270
608
0
333
0
-2629
0

6000
90
677
0
1142
0
0
1000
333
270
608
0
333
0
0
2055

6000
90
677
0
1142
0
0
1000
333
270
608
0
333
0
0
0

72000
1080
8124
0
13704
15852
2000
12000
3996
3240
7296
4500
3996
1500
-9287
3668

TOTAL PAYMENTS

22416

10150

10453

10387

10920

10453

11787

11902

10453

11787

12508

10453

143669

NET CASH FLOW

7584

-10150

-9453

-8387

-7920

-7453

-8787

-3902

-2453

-3787

-508

1547

OPENING BALANCE

7584

-2566

-12019

-20406

-28326

-35779

-44566

-48468

-50921

-54708

-55216

CLOSING BALANCE

7584

-2566

-12019

-20406

-28326

-35779

-44566

-48468

-50921

-54708

-55216

-53669

Thank you