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Raising Capital In A Worsening Macro-Economic Environment

One could try to rely on the views of economists but then again, as the age old saying goes: “The only way to trust an economist is to chop off one hand so that the economist can’t say ‘on the other hand…’.”

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  • Company: Sasfin Corporate Finance
  • Contact: +27 (0)11 531 9281
  • Visit: sasfin.com

Uncertainty is nothing new to any business manager. This uncertainty essentially comes in two forms: Exogenous risks and Endogenous risks. A manager can control the internal risks in an organisation but exogenous risks are harder to control and these risks are linked to macro-economic events which are almost completely out of the control of a business manager.

One could try to rely on the views of economists but then again, as the age old saying goes: “The only way to trust an economist is to chop off one hand so that the economist can’t say ‘on the other hand…’.”

The key to managing ever-changing external influences on a business, is to constantly evaluate these influences and remain adaptive. This often leads a business manager on the path to raising capital.

Quite often, and particularly during challenging macro-economic environments when a business manager needs to keep a close eye on the operations of the business, they may need to seek assistance from advisors to conclude not just a ‘life-raft’ capital raise, but rather a bespoke capital raise, to ensure the economic storm is weathered and the business is poised to continue growing and capitalising on the opportunities presented by difficult times.

Related: How Do I Go About Valuing My Business?

The source of capital is dependent on numerous factors, such as the cash-generating ability of the business, business sensitivity relative to the business cycle, health of the balance sheet and the management team/shareholders’ ultimate objectives.

Cash-generating ability of the business

A cash-generative business is any investor’s dream. Obviously the ability for the business to raise capital is dependent on existing debt obligations and how amenable the shareholders are to the type of capital injected into the business.

Raising capital for a profitable business that has a consistent track record, even during poor macro-economic environments, is usually doable as it offers a positive return for investors and financiers.

The question is whether to raise equity or debt? To answer this question, one would first need to assess the current and target capital structures of the business. It is advisable, where not clear-cut, to engage with a  professional advisor to assess your business’s capital structure.

Should this exercise indicate a need for equity capital, for a private business, the most efficient way to raise equity would be through a structured process designed to attract potential investors with the right pedigree and access to capital to enable your business to exploit opportunities.

A further option, which may be viable for some companies, would be to pursue the option of listing on a recognised stock exchange. This has the benefit of either raising capital on listing or post-listing, and being able to access public capital markets more frequently than when a company was privately held.

Business’s sensitivity relative to the business cycle and health of the balance sheet.

Should this exercise result in the answer that debt is the most appropriate form of capital to raise, it would be important to consider the key characteristics of debt: Debt can be cheaper yet potentially more demanding on cash resources that the business may want to hold onto during tough times e.g., by way of contrast, although more expensive, equity requires no interest to be serviced or capital to be repaid and constitutes a more patient type of capital.

Most businesses are sensitive to a business cycle, but on the odd occasion there are businesses that are agnostic to the business cycle. The reason for this is either that the underlying business is relatively indifferent to the business cycle or the manager of the business has structured a business that has a diverse income stream coupled with an entrepreneurial mindset.

Usually during times of poor economic growth a business may experience an environment of low interest rates. Therefore, raising debt through either a credit facility or an existing note programme is less expensive than raising equity capital from investors who expect higher returns. Furthermore, where debt is raised in the production of income, the interest incurred on this debt would normally be fully deductible in terms of South Africa’s income tax legislation.

That said, there is an old joke about bankers: “A banker is the type of person who will lend you an umbrella when the sun is shining and demand it back when it starts raining.”

Consequently, during times of poor economic growth, a bank’s willingness to extend new lines of credit is often restricted. That’s why being able to access alternative debt sources or ensuring that the business has excess capacity in terms of its existing credit facilities with a bank is important. A proven track record of being able to service a debt obligation goes a long way when applying for new facilities. An important consideration to note is that a bank or a funder may enforce stricter covenants in an environment of poor economic growth if new debt is raised (and sometimes even on existing facilities).

Related: Raising Capital Through A Black Economic Empowerment Transaction

An alternative to debt or equity is preference shares. The problem faced by companies accessing the South African preference share market is that investors are still mindful of the fairly recent demise of African Bank. That said, we have noticed renewed demand in this market and, for the right types of business, this is a very attractive alternative to raise quasi equity finance. The main alternatives would be issuing perpetual (i.e. non-redeemable) or redeemable preference shares. This decision, taken in consultation with a company’s advisors, will need to be carefully assessed depending on the company’s needs.

Finally, the key to any capital raise during trying times ultimately rests with the management team. A good manager with an adaptive and positive attitude, and supportive shareholders will make the process of raising capital in times of economic stress easier.

Sasfin Corporate Finance focuses on providing innovative commercial and banking solutions to our clients. As an accredited sponsor and designated advisor with the JSE, we offer our sponsor and designated advisor clients independent advice on a full range of corporate finance transactions including advice relating to continuing obligations in terms of the JSE Listings Requirements. Sasfin Capital is a division of Sasfin Bank Limited, a subsidiary of Sasfin Holdings which listed on the JSE in 1987

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4 Black-Owned Businesses Participating in This Enterprise Development Programme That Are Growing – Fast

The Department of Small Business Development (DSBD) and Property Point have joined forces to take 16 small to medium-sized, black-owned, businesses, through a life-changing enterprise development programme.

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The Department of Small Business Development (DSBD) and Property Point have joined forces to take 16 small to medium-sized, black-owned, businesses, through a life-changing enterprise development programme.

In its first three months of operation, this programme has already seen incredible results with an average growth rate of 27% per business,  R17,8million in contract secured and 21 direct jobs created. This is a unique collaboration in that it is set up specifically to encourage access to markets for the beneficiary businesses and is the first of its kind in the industry.

But who are the people behind the numbers?  Meet four out of the 16 business owners , Thabiso, Falvia, Malusi and Mandla taking full advantage of this opportunity.

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Calling All Social Entrepreneurs: Be SA’S Next Changemaker With The Nation Builder Social Innovation Challenge

In partnership with LaunchLab and the Mergon Group.

Mergon Group

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Nation Builder, together with the Stellenbosch University LaunchLab and the Mergon Group, is inviting business pitches for their inaugural Social Innovation Challenge. The competition aims to identify and support South Africa’s social entrepreneurs, with an opportunity to win a share of R150 000 seed capital.

Entrepreneurs with a self-sustainable business idea – no matter how simple or small – that addresses particular social issues, positively impacts communities, empowers the disadvantaged, or has the potential to solve local problems in innovative ways, are invited to enter the Social Innovation Challenge.

Ten finalists will receive exposure to a broader network of business investors at the final pitching event, which will be hosted by LaunchLab in Stellenbosch on 13 June 2018. Three final winners will receive their portion of R150 000 funding capital, as well as business support from LaunchLab.

Related: How To Be A Social Entrepreneur

In addition to social innovation specialists, media and social development experts, the judging panel will consist of astute business leaders who have successfully walked the entrepreneurship journey.

“Social entrepreneurs are those who see social challenges as opportunities, devise sustainable business solutions to meet those needs, and positively impact many South Africans in the process,” says Keri-Leigh Mac Donald, Executive Director of Nation Builder, an organisation that supports businesses in leading social change in South Africa.

“Social entrepreneurs are the next wave of change makers and social reformers. Nation Builder wants to support and showcase some of these great and emerging home-grown social businesses as a means to challenge us all to think differently when addressing our local social challenges,” she adds.

According to Brandon Paschal, Head of Incubation at LaunchLab, most of the start-ups that the LaunchLab currently work with already have a strong social conscience. “We have worked with many great small businesses in sectors such as mental health, financial inclusion, job creation, empowerment, and sustainability.  We’re excited for them to have this platform with Nation Builder and the broader network of great socially-responsible companies. It is a wonderful way for them to gain more exposure, but also to work with like-minded partners that can help take their businesses forward, without compromising on their social conscience and the greater purpose of their business.”

The winning entrepreneur and their business idea will also be showcased at Nation Builder’s In Good Company conference in Gauteng in August 2018. In addition, they will receive exposure through the various Nation Builder, Mergon and LaunchLab media channels.

“The societal benefits from these enterprises can bring about increased economic activity and opportunities for many more South Africans, while playing a pivotal role in breaking the cycles of social ills that many people are facing daily. The Nation Builder Social Innovation Challenge is a first step in fuelling and highlighting local social innovation solutions,” says Pieter Faure, CEO of Mergon.

Related: 3 Ways For Social Entrepreneurs To Access Fundraising

Submission requirements: Submit a 3-minute video (cell phone footage can be submitted too) of yourself explaining your business idea with your entry form which can be found on the LaunchLab website: http://www.launchlab.co.za/nationbuilder2018

Pitches (video entries) need to focus on providing the following information:

  1. Provide a brief summary of the business/social innovation idea and its history.
  2. What is the particular social issue that the business idea aims to address?
  3. How does the business idea solve or address the social issue?
  4. Explain how the business intends to make money and be sustainable, while clearly describing the target market or customer profile.
  5. What key milestones have been achieved within the venture already?
  6. What is the strategy to grow the business and scale the social impact?
  7. Anything else that the panel needs to know?

Submissions opened on 14 March, and the deadline for online submission entries is 11 May 2018. The top ten finalists will be notified by the end of May. Finalists’ transport to and accommodation in Stellenbosch for two nights will be provided.

LaunchLab’s terms and conditions apply, and are available to download here:  https://launchlab.co.za/innovationchallenges/competition-terms-conditions/

The three winning pitches will be announced at the pitching event on Wednesday 13 June 2018. The panellists’ decision is final.

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How Your Devices Can Improve Your Business Travel

Dawn Weir, head of kulula work and a veteran business traveller, offers these tech-savvy tips for road-warriors.

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Technology has made business communication and business travel easier than ever, but it’s still possible to have a minor disaster involving your indispensable devices. Dawn Weir, head of kulula work and a veteran business traveller, offers these tech-savvy tips for road-warriors.

Stay on track

Activity trackers can help you stick to your fitness regime by recording step-counts, distances covered, sleep and nutrition. If you don’t fancy wearing one that looks like it’s from the flight-deck of the starship USS Enterprise, others are available which clip onto your ankle or clothing. Many are water-resistant and rugged, but if you prefer to not buy-one, apps like Samsung Health will record and analyse your daily activity.

Related: Kulula Work Brings You The Cheapest Flights Of The Day For Your Business Travel

Power naps

A few bad nights’ sleep while travelling can leave one feeling unfocused and tetchy. Some of us sleep better in hotel-rooms than others, and some can be downright noisy. You can try using earbuds, but we don’t all like having wads of foam stuck into our skulls when trying to slip into the arms of Morpheus. One alternative is to load a white-noise generator on one of your devices. A site like www.mynoise.net has hundreds of soothing sounds, including waves, rain, crackling fireplaces, trickling streams and even Tibetan monasteries.

It might not drown out the sound of the guys returning to the hotel from their “team-building dinner” at 2am, but it’ll help to smooth out the noise of traffic and air-conditioning.

Cancel the chatter and clatter

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Many business-travellers now swear by noise-cancelling headphones, which block out distractions and racket and can subtly let fellow travelers know that you’d prefer to not engage in lively conversation. Researchers disagree on the effectiveness of binaural beats for everything from creativity to concentration, but many students, academics and entrepreneurs find that they help with focus the mind.

Stay juiced

Most mobile devices have decent battery-life nowadays, but the size and brightness of their screens and the plethora of apps running on them can drain that very quickly. Save your battery by switching off anything you don’t need: BlueTooth, location, mobile data and so on, as well as apps you’re not using. Switching your phone to Flight mode will also save battery power. Travellers increasingly user power-banks to boost battery-life, but Weir suggests reading users’ product reviews before buying one, as some are far more efficient than others.

Related: Flying High With Reliable Travel Partners CANCOM And Kulula

Back up and go

Save your important documents – scans of your passport if you’re travelling internationally – as well as hotel reservations and travel itineraries, and take pictures and screenshots of them on your phone. That all-important PowerPoint presentation? Use a file-hosting service like Dropbox to put it in the cloud so you can access it wherever you need to.

Declutter

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If you’re a regular business traveller make a point of emptying all your luggage every few weeks. You’ll probably find you’ve accumulated flash-drives, USB adaptors and stationery and other stuff that takes up space and adds weight.

Downsize

Everyone from business travelers to backpackers loves the portability of laptops, but while they’re lighter than ever, those with bigger screens can be bulky. One option is to travel with a tablet, which offers the efficiency of a laptop while taking up less space. If you need to do a lot of inputting while you’re on the road, get a flexible keyboard that can be rolled up until need, or pair your tablet or smartphone with a laser projection keyboard. It’s a clever gizmo that projects a full-sized QWERTY keyboard onto any flat surface, allowing you to type pretty much anywhere.

Related: How To Take The Hassle Out Of Business Travel With Kulula Work

Converge

We’ve all seen the infographics showing how smartphones combine all the devices we once owned separately, like cameras, DVD- and CD-players, and that innovation continues. The Belkin Travel Rockstar combines a battery pack, surge protector and charger. It has three plug-ports (you may need an adaptor, depending on which plug configuration you use) and two USB ports.

Still not high-tech enough? Try Pluggage, a smart suitcase produced by luggage brand www.delsey.com that has its own app. It’s available in three sizes and its features include fingerprint ID to lock and unlock it (you can also lock and unlock it using the app), interior lighting and speakers. It weighs itself, has integrated USB chargers for your devices, and GPS tracking notifies you when it’s on a luggage carousel at the airport or being loaded onto or off a flight.

To make your business travel that much easier and to find out more about kulula work call +27 (0)11 285 3050, email sales@kulula.com or visit www.kulula.com/work.

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