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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…’.”

Sasfin

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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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Buy Or Invest In The Next Futuredev Properties Sandton Development

Looking to buy or invest in the next up and coming Sandton residential development? Futerdev Properties are currently developing Full-Title Free standing units, perfectly located just a few km’s away from the hustle and bustle of Sandton’s Central Business District.

Futuredev Properties

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Nearly half of all the office development taking place in South Africa right now is happening in Sandton. Sandton Central is the epicentre of this development, which includes many of the most cutting-edge, exciting and innovative new buildings on the continent.

Sandton Central is well established as Africa’s financial and business capital and continues to grow with developments that embody its vibrant, high-energy ‘live, work, play’ environment. It also currently holds the title of Africa’s Riches Square Mile.

With more people looking to be part of this live, work, play environment and the number of foreigners travelling to Johannesburg for business and work, the demand for residential property around Sandton Central has grown exponentially.

Live, Work And Play: Your Home Away From Home

Futuredev Properties specialises in developing Full-Title Residential Homes in the Sandton Area – Morningside and Bryanston to be specific. The most recent surveys have listed Bryanston as one of the better performing suburbs in terms of Capital Growth.

Our properties offer family living and a home-away-from-home feeling for those working in and around Sandton on longer or shorter assignments.

FutureDev Properties was founded by Akbar Hassim. We have established ourselves not only as an independent, but also a Turnkey Developer – being able to buy Land, Finance the Real Estate Deals, Create, Control and Orchestrate the process of the Development from beginning to end.+

“Our approach to Property Development and Investment therein involves thorough financial and delivery risk analysis, thereafter followed by focused and efficient delivery.”

This approach is underpinned by many years of experience, and an impeccable entrepreneurial spirit.

Buy And Invest In The Latest Residential Developments

We have a number of Residential Developments currently underway, each at various stages. These Full-Title Free standing units, afford residents space and comfort within the security of cluster/ estate living. Perfectly located just a few km’s away from the hustle and bustle of Sandton’s Central Business District, and within close proximity to all major Malls & Shopping Centres, Schools, Hospitals, Gyms and places of worship.

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We afford buyers and investors an opportunity to buy or invest in Prim Residential Real Estate, that provide the perfect balance of Excellent Capital Growth and Steady Income Yields.

Our Offering For Investors & Buyers

  • Full-Title Free-Hold Residential Cluster Developments
  • Prime locations, close to all essential amenities
  • Perfect balance of high Capital Appreciation and Steady Income Yields
  • Investor buyers can purchase with Rental Guarantees

*Limited number of investor units available

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Smoothie Franchise Opportunity: Puré Frooty Is A One-Of-A-Kind Smoothie Franchise Business

Looking for the next greatest franchise opportunity? Puré Frooty Smoothie is a highly perfected Australian business model launching in the South African market that doesn’t require extensive shop fitting or a large workforce.

Pure Frooty Smoothie

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Puré Frooty Smoothie is a unique business model to the South African market. A delicious, fruit filled smoothie will be created at the touch of a few buttons.

An Innovative Franchising Concept

This innovation in the healthy smoothie industry is ground breaking for South Africa. The machine is manufactured in Australia by a highly skilled team. It took six years to perfect this business model for the consumer market.

The vision of Puré Frooty Smoothie is to offer convenient on-the-go smoothies for anyone. The experience and quality will always be of the highest standard. We aim to be a staple convenience in malls, schools, office parks and hospitals. This is a platform that will allow for self-growth for passionate entrepreneurs.

Our mission is to create a unique customer experience. We want to satisfy the nutritional needs of customers by providing quality smoothies. Puré Frooty Smoothie will be packed with all the goodness a smoothie should offer.

Related: Why Your Franchise Should Adopt A Shared Value Business Model

The four values we pride ourselves in are:

  1. Convenience
  2. Consistency
  3. Quality
  4. Customer Satisfaction.

Why Consider This Franchising Opportunity

healthy-smoothie-franchise

Extensive research into the business model and market

Puré Frooty Smoothie was an idea, researched widely, by people looking to simplify the business process for the consumer and business owner. There was a gap in the market for simplified customer service and a demand for a quicker turnaround time.

Simplified process for setting up a business

For an entrepreneur it can be very overwhelming to start or buy a new or existing business. There are so many crucial decisions that need to be made from the beginning and new concepts to adapt to.

Puré Frooty Smoothie simplifies that drastically:

  • Free-standing machines: The business model revolves around a free-standing vending machine which needs to be visited to refill and maintenance.
  • No shop-fitting required: There is no need for shop fittings or a large work force. All that is required is an inside space for the machine with a power supply.
  • Minimal human resources needed: In terms of a work force, you could either do it yourself or have one person to assist you. There is also a part time involvement where refill station teams can refill and maintain the machine.
  • Cashless business: The business is completely cashless so there are no worries of a note jam, full cash canister or insufficient denomination rand values. More importantly the machines would do a higher turnover than an ordinary vending machine so safety of no cash is important.
  • Easy tracking of stock and performance: A cloud-based system is linked to the point of sale which allows you to monitor your performance and stock from the back-office platform at any given time.
  • Efficient handling of maintenance: With a live point of sale system, the business is linked to a software which monitors the operations of the machine. Should anything malfunction an immediate notification will be sent with a diagnostics report.
  • Human error is eliminated: Everything is done with a computer which leaves little to no room for errors. It is self-order and very user friendly.

Related: SA Fast Food Franchising On The Rise

Why Will Customers Love It

Puré Frooty Smoothie offers a vending machine that can produce a delicious smoothie in forty seconds. An informative touch screen ordering panel which displays all the nutritional information of the smoothie ordered and has the current news and weather.

No time wasted for the consumer. In fact, it’s a learning session disguised as a waiting period. The machine has two wash cycles after every smoothie is made to be freshly prepared for the next smoothie, business hygiene is important.

Consumers live in the fast lane. We are looking for something quick and most times we would like to be healthier. With the hustle and bustle of today’s life every little bit helps. Puré Frooty Smoothie fills that gap in the market.

Interested in Becoming A Franchisee?

Visit our Franchise Info Page for everything you need to know about how to become information a Puré Frooty Smoothie Franchisee owner.

You can also call or write to us:

Phone / 012-942 6360
Email / info@purefrooty.co.za 

Want to know more about this franchise? Watch the video below for more.

 

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Enter The Total Startupper Of The Year Challenge

Are you a young entrepreneur? Do you have a project you believe in? Is it innovative and does it address a social or community challenge in your country or for your fellow citizens? Register and apply now. You could be the Startupper of the Year!

Total South Africa

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Startupper of the year challenge

After the success of the first Challenge in 34 African countries, this year’s has been extended to a total of 55 countries around the world.

3 winners from each country will receive financial support, extensive publicity and coaching. From among these 3 winners per country, we will select grand winners by region, who will be provided with exposure.

This year, a Top Female Entrepreneur category has been introduced. During the first Challenge, women accounted for almost 25% of the winners, even though they only made up 13% of the applicants.

Related: Business Plan Format Guide

With this special award this year, we hope to give the women entrepreneurs an extra push to take part. It is also aligned with other Total initiatives for women.

The 2018/19 Challenge

We aim to support good ideas and projects that help address a widespread problem affecting communities in your country. It could be about providing educational opportunities, reducing child mortality, improving public health, developing access to electricity in rural areas, improving road safety on the roads or building houses with eco-friendly materials — in fact, anything that could make life better in your country.

Tell us how your project will help more and more people over time, at home or even abroad. Tell us how it empowers people, improves living conditions, and contributes to overall economic well-being.

Anyone can change the world — teenagers or graduates, men or women. As long as you believe in your project and want to make things better, take this opportunity to participate. You could be the next Startupper of the Year or the Top Female Entrepreneur!

Enter the Total Startupper Of The Year Challenge Here

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