This project is co-funded by the European Union and the Government of Jamaica 1 EQUITY financing for your business TRAINING ROOM JAMAICA TRADE & INVEST THURSDAY, AUGUST 20, 2009 C ORPORATE F INANCE B ROKER UNIT

This project is co-funded by the European Union and the Government of Jamaica 2 Objective The objective of this presentation is to provide useful information that will empower participants to make the right decisions when seeking equity financing for business ventures.

This project is co-funded by the European Union and the Government of Jamaica 3 Business Expenses Licenses / Permits Payment for professional services e.g.- legal, accounting, insurance Leasehold improvements Purchase of furniture, fixtures and equipment Stationery / Office supplies Wages Inventory

This project is co-funded by the European Union and the Government of Jamaica 4 Equity Financing Equity funds come from the personal moneys of partners ( e.g. savings, investment, inheritance, friends, family and business associates), and from stockholders. They are normally unsecured loans and have no registered claim on any assets of the business, freeing those ( i. e. the assets ) to be used as collateral security.

This project is co-funded by the European Union and the Government of Jamaica 5 Equity Financing Equity has a direct impact on the ability of firms to attract loans and or capital. Firms that borrow heavily compared to their equity position are considered to be highly leveraged. Simply put their activities are funded more by borrowed funds than from owners fund. A fully leveraged business ( i.e. 100 % )has no further ability to borrow funds. The firm is already owned by its debtors.

This project is co-funded by the European Union and the Government of Jamaica 6 How much equity should I have in my business ? - Ideally 25% to 40% indicates to a lender that you are committed to your project and prepared to share the risk. - As the business grows the owners should try to keep their equity at approximately 25%. - Earnings retained in the business will increase your equity position. Equity Financing

This project is co-funded by the European Union and the Government of Jamaica 7 Sources of Equity Financing Family, Friends, Inheritance and Personal Mortgages If you decide to go this route consider doing so on a straight business basis. Present them with a well thought out business plan- this will give them a sense of faith in your business and abilities to manage. Equity Partners Identify persons who not only have the money but are knowledgeable about the industry itself, connected, and have expertise in areas of the business you do not.

This project is co-funded by the European Union and the Government of Jamaica 8 Sources of Equity Financing Investors Look first within the industry- Investors prefer businesses they understand Passive investors- look for professionals who have a steady income and their own responsibilities so that they have little time to interfere in your business. Public Listing on Stock Exchange - Broad based ownership from many shareholders

This project is co-funded by the European Union and the Government of Jamaica 9 Sources of Equity Financing Cont’d Approaching Equity Investors Accept the fact that a partner will expect to be involved in the decision- making process. At the very least they expect to be kept regularly updated on your activities. Angel Investors- An angel investor (known as a "business angel" in Europe, or simply an "angel") is an affluent individual who provides capital for a business start-up, usually in exchange for ownership equity. Angels typically invest their own funds, unlike venture capitalists, who manage the pooled money of others in a professionally- managed fundstart-upownership equityventure capitalistsfund

This project is co-funded by the European Union and the Government of Jamaica 10 Sources of Equity Financing Cont’d Business Plan Evaluation  Persons investing in your company should be presented with a sophisticated and detailed business plan.  The prospective investor should rigourously evaluate all aspects of the plan  Business Plans should include information on management, products, production methods, operations and cost, markets, summary of liabilities, shareholding and financial projections.

This project is co-funded by the European Union and the Government of Jamaica 11 Shareholder Loans as Equity Shareholders Loans represent equity paid into a private company by relatively few “partners in profit and risk” in exchange for share ownership. The shareholder loan may be secured by share certificates.

This project is co-funded by the European Union and the Government of Jamaica 12 Sources of Equity Financing Cont’d Equity In Real Estate  Under utilized equity can be used to secure additional funding

This project is co-funded by the European Union and the Government of Jamaica 13 RISK MANAGEMENT Involves: Identifying Analyzing Reducing OR Eliminating The exposure to loss faced by an Organization or Individual.

This project is co-funded by the European Union and the Government of Jamaica 14 RISK MANAGEMENT RISK MANAGEMENT RISK MANAGEMENT cont’d Identification: Risks are about events that, when triggered, cause problems. Start with the source of the problem, or the problem itself. Assessment. Once identified, they must be assessed as to their potential severity of loss and recurrence Potential risk treatments Avoidance – eliminate Reduction – mitigate Transfer – outsource Retention- accept and budget

This project is co-funded by the European Union and the Government of Jamaica 15 RISK MANAGEMENT RISK MANAGEMENTRISK MANAGEMENT cont’d CATEGORIES Internal Fraud: Misappropriation of Assets; Bribery External Fraud : T heft of information; Forgery Employment Practices and Workplace Safety : Employee health and safety; Background checks Clients, Products and Business Practices : Product defects, Market manipulation

This project is co-funded by the European Union and the Government of Jamaica 16 RISK MANAGEMENT RISK MANAGEMENTRISK MANAGEMENT cont’d CATEGORIES cont’d Damage to Physical Assets : Natural disasters; vandalism Business Disruption & Systems Failures : Utility disruptions; Software failures; Hardware failures Execution, Delivery & Process Management: Data entry errors, Accounting errors, Loss of clients assets, Failed mandatory reporting

This project is co-funded by the European Union and the Government of Jamaica 17 REINVESTING IN YOUR BUSINESS WHY REINVEST ? RELOCATION EXPANDING BRANCH NETWORK ACQUIRING NEW MACHINERY MARKETING DEVELOPMENT OF NEW PRODUCTS

This project is co-funded by the European Union and the Government of Jamaica 18 REINVESTING IN YOUR BUSINESS A Company’s first three years are considered to be the slowest. BUT The gap between the present and your vision for the Company’s future can be narrowed if you reinvest your profits

This project is co-funded by the European Union and the Government of Jamaica 19 REINVESTING IN YOUR BUSINESS Businesses die because of lack of appropriate funds to grow Do not splurge profits on conspicuous and financially demanding lifestyles Focus on the value of your expenditure that will improve your business Do not invest in things that have no long term value

This project is co-funded by the European Union and the Government of Jamaica 20 REINVESTING IN YOUR BUSINESS If possible, open a new bank account for profits alone. This money should be used exclusively to explore methods to grow the company - e.g. : product improvement hiring additional staff advertising – e.g. improving your logo automation of business processes

This project is co-funded by the European Union and the Government of Jamaica 21 REINVESTING IN YOUR BUSINESS Vision without action is a daydream; Action without vision is a nightmare He that will not apply new remedies must expect new evils. If failure is not an option, then success cannot mean much SUCCESS IS A JOURNEY…. NOT A DESTINATION

This project is co-funded by the European Union and the Government of Jamaica 22 Let’s Talk Questions & Answers

This project is co-funded by the European Union and the Government of Jamaica 23 Conclusion THE END