Helping Your SME Clients Raise Capital Painlessly

Accountant's Minute 185

Helping SME (Click here) clients raise capital can be a funny process and when confronted with ideas like Crowd Sourced Funding Equity Raising (Click here), it’s understandable that your first reaction may be to put up barriers.

Oh yes, we’ve all seen tax schemes over the years, like feature films and jojoba plantations, that end up going pear-shaped, leaving your clients asking ‘So, what happened to my money?

As accountants, it’s no wonder we’re becoming reluctant to recommend any new ideas to clients, in case those ideas turn out to be ‘turkeys’.

Well, Crowd Sourced Funding Equity Raising is quite different.  It’s not a tax scheme, or a scheme of any kind, for that matter.

In fact, it’s a completely legal process that gives your clients access to the capital they need to continue building their businesses.

Three Capital Raising Options

When one of your clients needs to raise money to expand their business, until recently, there’s really only been a few ways to go:

  • Bank (Business Loans with Personal Guarantees) (Click here)
  • Venture Capital (Click here)
  • Investors (capital raising under s708 Corporations Act) (Click here)

The first option is beating the traditional path to the bank.

If the client’s loan application is ultimately approved, then the bank will usually demand directors put up their family homes and any other assets, as well as personal guarantees (Click here) to secure those loans.

We all know what banks are like.  They love to move the risk onto someone else.

When that happens, the owner/manager may become far more conservative in their decision-making, often to the detriment of the company.

Secondly, there’s Venture Capital (Click here) funding.

Sure, this presents a lot less risk to the directors, but VC finance companies always seem to want an arm and a leg in return for their investment.

Option three has allowed small proprietary companies to raise up to $2 million in a 12-month period from a maximum of 20 investors under s708 of the Corporations Act. (Click here).

Fourth Option

But now, there’s a fourth option.

This is something really new, extremely flexible, low in risk and tailored to the needs of SMEs, which may just suit many of your clients down to the ground.

It’s called Crowd Sourced Funding Equity Raising (Click here) and it's only just been legalised.

This form of capital raising lets your clients allot some shares in their company to a number of passive investors, each of whom is only allowed to invest up to $10,000 in any single company in a financial year.

For most companies, this means that these investors will always remain small (retail) and passive shareholders (Click here).

All these investors want in return is a dividend when the company makes a profit, which it hopefully will do each year.

Unlike the onerous obligations associated with bank loans (Click here), no repayments are ever due on capital raised this way and there are no personal guarantees on the line either.

Crowd Sourced Funding Equity Raising for small proprietary companies finally became legal in Australia on 19 October 2018.

According to some of the Intermediaries' websites $13.3M has been raised for 21 small and medium enterprise companies through the official ASIC appointed Intermediaries.

What are Intermediaries?

To maintain a regulated structure, ASIC has licensed a number of finance companies as ‘Intermediaries’ (Click here) for Crowd Sourced Funding.

It’s their role to approve your client’s Offer Document (Click here) and then offer that investment opportunity to private investors.

Most Intermediaries claim to have about 30,000 or more private investors on their pre-existing databases, but they’re also able to go out to the general public.

Intermediaries can employ a number of strategies to secure the necessary capital.

Sometimes, they’ll start the process with a "private launch" or a "pre-seed round" offer, giving company employees, customers, suppliers, friends and family associated with the SME the opportunity to be the first to subscribe.

Whatever strategy they recommend employing, ASIC-appointed Intermediary companies are the only groups, who can go out to small private investors on behalf of your SME clients.

Based on recent information we’ve gathered from all the current Intermediaries, more than 21 SME companies have already received funding for amounts ranging from $184,000 to $2,400,000. (Click here).

These newly-funded SMEs cover a broad range of industries (click here from online banking to alcohol, clothing, digital apps, gambling, sports and many others.

Additional companies are being listed on the seven Intermediaries’ websites almost daily.

The Role of Accountants in the Capital Raising Process

Each of these capital raisings has required a significant input from the various SMEs' accountants.

In the case of these successful capital raises, the various SMEs' accountants needed to:

  • advise their clients on the strategy they should follow (Click here)
  • help the client assess and appoint the appropriate Intermediary (Click here)
  • prepare a summary of the company’s operations and/ or a Business Plan and Budgets and Cash Flow Forecasts together with the company’s annual accounts to be utilised for the preparation of the Crowd Sourced Funding Offer Document (Click here
  • prepare and submit the all-important Crowd Sourced Funding Offer Document to the Intermediary who after reviewing the document will upload the Offer Document to the Intermediary’s website; (Click here)

The same services will need to be provided by your accountancy firm to your clients, if you convince them that this form of capital raising is the right way for them to go.

Just remember.

Each of these stages within The Crowd Sourced Funding Equity Raising process will generate new fees” click here and click here to view revenue opportunities detailed in an article by the Australian Financial Review.

These are new revenue streams that you are not currently receiving, but will be once your practice develops a reputation in Crowd Sourced Funding Equity Raising.

All those new fees will be premium fees for specialist accountancy work; the type of work most accountants really love to offer as ‘trusted advisors’ to their clients.

It’s estimated that fees for accountants in a typical SME Crowd Sourced Funding Equity Raising will be around $4,000 - $40,000.

Crowd Sourced Funding is clearly a niche product for SMEs and because of this, it is anticipated that most applications and Offer Documents will be prepared by small and medium-sized accountancy firms because these types of accountancy firms are traditionally the advisors to small/medium enterprises.

Why shouldn’t you be one of them?

Proven Success of Crowd Sourced Funding Equity Raising?

Under Australian Crowd Sourced Funding Equity Raising laws, unlisted proprietary companies or unlisted public companies, with a group turnover under $25M a year and with less than $25M of group gross assets that are not listed on a stock exchange or financial market anywhere in the world, are now eligible to raise up to $5M a year from retail (small) investors (click here).  To read ASIC information (click here).

That’s right.  They can raise up to $5M every year.

….. and, capital can be raised for any legitimate business reason (Click here) like providing for the retirement of existing shareholders or clearing bank loans.

The question you need to ask yourself is ‘am I prepared to let my clients miss out on a new opportunity that could potentially benefit them in so many ways, simply because I’m not quite sure what Crowd Sourced Funding is all about?’

Learning the Ins and Outs of Crowd Sourced Funding Equity Raising

My company, ESS BIZTOOLS, is not an Intermediary and we don’t raise funds.

So, what do we do and why am I writing to you?

Well, for more than a year, my team and I have thoroughly researched the Crowd Sourced Funding Legislation and its amendments until it finally became law.

Based on this research, we’ve been able to produce valuable information and the pro-forma documents you’ll need to mentor your clients on all aspects of the Crowd Sourced Funding Equity Raising journey, including an awareness of the appointed Intermediary's duties, responsibilities and powers culminating in the preparation of your SME client's Crowd Sourced Funding Offer Document for Crowd Sourced Funding.

This will save you many hours of your valuable time, as you’ll have all the information at your fingertips.

To get a detailed overview of what Crowd Sourced Funding is all about, take the time to read through the preliminary information and view the videos on the Blog/Accountant's Minute area of our website (Click here).

This information is freely available on our website (Click here).

More specific and detailed information, including a Client Assessment Matrix (Click here) and all the necessary documents to help simplify the application process are available in our Crowd Sourced Funding Equity Raising Product Package.

Our Crowd Sourced Funding New Year Offer

Our Crowd Sourced Funding Equity Raising Product is normally available for $999 incl GST.

That’s really a very reasonable investment when you consider that all the research has been done for you and all the necessary documents have been prepared.

However, seeing it’s the start of a new year and, here at ESS BIZTOOLS, we’re all relaxed after our holidays, we’re feeling particularly generous! (Click here).

So, we’ve cut the cost of our Crowd Sourced Funding Equity Raising Product Package by 40% (Click here - insert the discount code "CSFC40" at checkout to obtain this special offer) but only until close of business Friday 15 February 2019.

Even if you’re only weighing up the idea of Crowd Sourced Funding, then this is an offer you simply should not miss out on.

Don’t worry … like all of our ESS BIZTOOLS' products, our Crowd Sourced Funding Equity Raising Product Package is fully covered by our No Risk Money Back Guarantee. (If, after 60 days, you are not completely satisfied with ESS BIZTOOLS, we will gladly refund your subscription).

But, beware.

Come 18th February, the price goes back to normal.  So act now and don't miss out.

Make Crowd Sourced Funding Equity Raising Proactive Assistance for Clients Your New Year's Resolution.

I’ve been an accountant for many years and I’ve looked very closely into this new form of SME capital raising.

To my mind, it’s one of the most exciting business developments for Australian SMEs in a generation.

My advice is that, as an accountant, you should also look very seriously at the possibilities that Crowd Sourced Funding Equity Raising (Click here) could offer your SME clients this year.

Take the time to get yourself up to speed with what’s involved in the process, so that you can then offer your clients the best advice to meet their needs.

In turn, you could be introducing your accountancy firm to a source of new professional revenue advisory streams (Click here) for services you aren’t currently providing.

Here in Australia, we’ve always been a nation to embrace new concepts in both technology and business.

With the seven Intermediaries having already raised substantial capital in the first three months of Crowd Sourced Funding, there is a strong indication that Australia is going to follow the international success of this form of capital raising for the small and medium-sized business sector.

Shouldn't you be part of it?

You are invited to participate in a free 50 minute webinar which will give you an overview of all aspects of Crowd Sourced Funding Equity Raising so that you can proactively offer this service to your clients and prospects.  This webinar is on Thursday 7 February 2019 at 11:30am AEST, 12:30pm AEDT.  To register please click here.

If you wish to take advantage of our special New Year discount offer and subscribe to Crowd Sourced Funding Equity Raising Product Package please click here and insert the code CSFC40.

We also have a special 40% discount offer on the ESS BIZTOOLS’ Gold Package (which includes the Crowd Sourced Funding Equity Raising Product Package) for details click here for a 12 months subscription of $1,782 including GST available until 15 February 2019.  If you wish to subscribe please click here and insert the code GOLDY40 (if you are subscribing to the upfront yearly price) or GOLDM40 (if you choose to pay 12 monthly instalments).

If you have any questions on any aspects of the products and services being supplied by ESS BIZTOOLS and ESS BIZGRANTS to assist Australian Accountants/Business Advisors to deliver a proactive Business Advisory Service for your CLIENTS AND PROSPECTS please do not hesitate to contact us:

Email: peter@essbiztools.com.au

Telephone: 1800 232 088

Have a great day!

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