Wednesday, September 23, 2009

Where to find a business angel in South Africa

When looking for business finance, the term business angel is perhaps not as well known in South Africa as compared to the US, UK and Europe. Business angels who are often individuals who are well of from previous business success, may have strong industry links in specific business industries and come with plenty of experience, unsurprisingly really can be a great asset to a new business.

It comes as no surprise that in some countries, business angels are preferred partners for business finance and moral support. 'Wow that sounds like a great option for my business' you may be thinking at the moment, so where can I find a business angel?

Contacts with business angels are often made informally. You really need to be keeping a look out for these individuals where ever you are and may find the ideal person amongst:

  • Personal friends and family.

  • Wealthy business contacts.

  • Individuals known to your professional advisers (eg your accountant).

  • Major suppliers and clients of your business.

  • You may want to approach an angel networking organisation such as Investors Network.
    Many of the most active business angels use these services to find out about interesting investment opportunities.

  • You usually have to supply a credible business plan and financial forecasts as part of the registration process.

  • Once you are registered, the organisation passes information on to business angels. Typically, angels will attend presentation meetings (where you present your business to them) or receive bulletins.

  • In addition to the above you may also attempt to find Angel Finance through the business to business sections of various newspapers include advertisements from investors and from businesses looking for finance.

  • If you want to advertise your business, the advertisement will have to meet the newspaper's standards.

  • The benefits of angel finance is well known and although it may not be as straight forward as walking into your local bank to apply for funding, as a new business just starting out it will certainly be worth your while to get a business angel on board as soon as possible.

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    Monday, September 21, 2009

    Business Plan help: writing the executive summary

    Today, with many organisations, especially those with much at stake preferring to opt for professional business plan service firms for business plan help, the art of writing a good executive summary for a business plan has largely been lost. With banks and business investors in countries such as South Africa, the US and a number of others, requiring a business plan before funding or business finance is considered, its easy to see why. So how do you write an effective and professional executive summary for your business plan?

    The executive summary is the most important section of your business plan. It is normally the first section of your business plan that investors will read, and could be the last if it is badly written. An executive summary should describe the company, the product or service, and the unique opportunity your company is offering. It should also provide a short description of your management team and a summary of the investment you are seeking. Don't forget to tell the reader why you need the money and how and when they can expect to be paid back!

    It creates a first impression (remember what your Mum said about first impressions!) in the Angel’s mind of both you and your business. Use clear and concise language and words that command attention, and excite your Angel.
    Be honest. It is often tempting to exaggerate or Gild the Lily, but you WILL get found out eventually and Angels will not be happy. Angels like the truth. Your summary should promote trust and if "just one little white lie" creeps out, Angels start to look for the others. Now you are on the back-foot.

    The executive summary is neither an introduction nor an abstract; it IS the business plan in miniature. It should stand alone and be interesting, concise and clear. It should take no more than 5 minutes to read and when finished the Angel should be able to say "So that’s what these people are up to"

    Here are several common mistakes that can make your executive summary less effective:
    Too wordy, and failing to get to the point. Angels are busy.
    Trying to be all inclusive (it should be a summary)
    Failing to show a unique or exciting opportunity
    Failing to summarise the investment sought
    Failing to generate interest in the reader

    Some suggestions to combat these problems:
    > Limit your executive summary to a maximum of 3 pages; 1-2 pages would be best
    > Focus on the opportunity and explain why it is special
    > Make certain that the opinions and claims in your executive summary are fully backed up by the other sections of your business plan.
    > Use only concrete facts and figures that explain your business concept, market niche and financial projections.

    Don't forget to include the details of your investment (the amount you need, what you will spend it on, and the return you offer your Angel)
    Keep the Angel Investor in mind - why are they reading the plan and what response are you hoping to generate?

    A good executive summary should demonstrate:

  • A business opportunity that makes sense

  • A clear plan for success

  • A capable management team

  • A clear, specific, and definable market

  • Significant competitive advantages

  • A solid and believable summary of the financial projections

  • An excellent chance for Angels to receive a healthy return

  • The outline of your executive summary will vary based upon your particular business. But regardless of the format, every executive summary should include the following areas:

    The Opportunity
    It should immediately grab the attention of your Angel. This is often best achieved by explaining why your business is different or unique. Clarify your business advantages, how you can break into your market first, the benefit of your proprietary product, or how research supports a significant customer demand for your product or service. Essentially, what differences or characteristics will lead to success?

    The Product or Service Description
    Describe your product or service in terms of its benefit to your potential customers. How does it work? What is it used for? Where is it sold? How much does it cost? How does the customer benefit? Remember to limit yourself to highlights in this section. Be brief.

    The Market
    Who is your customer? How large is your market? Who are the competitors? Why are you better? What are your market share projections? Your reader must be convinced that potential customers will have the want, need, and ability to purchase your product. Don't try to avoid the fact that you have competitors. Instead, explain how you can gain market share with your business advantages.

    The Management Team
    Describe the management and how they will lead to your success. Is it clear your team is well-rounded with the experience, expertise and capabilities to achieve the goals outlined in your business plan? Does your board of directors or advisors bring credibility and experience to the table? Be warned – management weaknesses will ensure that Business Angels will go no further.

    The Finance Requirements
    How much money has been invested to date? What are your earning projections for the next three years? What amounts are currently required? What will the funds be used for? From whom do you expect to receive your investment? What specific return do you offer an investor? What is the exit strategy, in terms of both time and return?
    At what point in the writing process is it best to write your executive summary? There are three schools of thought. The first says prepare it before you write the rest of the business plan. The second says write it before, then again afterward to combine the best of both. The third says prepare the executive summary only after the rest of the plan is complete.

    Which approach is correct? It's really a personal decision, but it has been our experience that preparing the executive summary when the rest of the business plan is complete is fairly effective. This allows us to summarize the plan after all the information has been laid on the table with the hindsight of compiling the entire plan.

    Remember to review your executive summary many times and ask yourself whether it grabs the reader's attention. Will they be excited about your business? Will they want to read the rest of the business plan? If the answers to these questions are no, rewrite it. Show it to a friend or business associate and ask them to be critical. Many times after someone reads your executive summary they will say "It's great, but what about…?"

    Most business plans are only given any concideration once the executive summary has been read and created enough interest for the business finance provider or investor found what they were looking for within the executive summary. Best of luck with your business plans and for business plan help, don’t be afraid to ask or seek help.

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    Wednesday, September 16, 2009

    Tips for Young Entrepreneurs

    One of the ma great things about becoming an entrepreneur is that there is no age limits. Any one young or old can be an entrepreneur and if I knew what I know now when I was 15 I would have started then. Young people often have few responsibilities and less to lose, plus with your whole life ahead of you, why not give it a try?

    The entrepreneurial landscape today is of course much different from the one 20 years ago. With the benefit of the Internet and an electronic commerce not only have entrepreneurs have almost instant access to a world wide market but startup costs are of corse much lower.

    In a recent interview with Business Link, Internet entrepreneur Marc Day, founder and creator of spoke about the joys of being an entrepreneur, his challenges and what he would do differently if he started a business again:
    Marc Day founded Limited, an internet-based, games-rental subscription service, two years after graduating. A professional attitude and thorough research has helped him finance and build his business, set to achieve a turnover of £1 million in its fourth year.

    What I did
    Take time for thorough research
    "After I left university I took on admin-type jobs just to get by. During this time I did lots of research into my business idea. I also carried out field research, questioning people coming out of video games shops. I got as many facts and figures together as I could and found out all the costs involved before I approached anybody for money.

    "It took about 16 months. I wanted to go into the market as quickly as possible, but I knew I needed to cover every angle before I did. I knew people weren't going to throw money at me and that they'd want to know all the details. Besides, it was important I knew that the business was going to be viable too."

    Explore all funding possibilities
    "When I was first looking for start-up capital I approached private investors and venture capital companies, but they all wanted to see more experienced management in the company. It was a difficult situation because I didn't have the money to bring that experience on board. The feedback was always that I had a great idea, but they'd like to see me start the company and how it went first. It was very frustrating. "But I plugged away and eventually I got the money through loans - personal and family ones.

    Importantly, I also secured a R300,000 bank loan. The bank was apprehensive, but I was able to use my parents' property as security and I made my father chairman of the company, which gave the bank more confidence. My father was experienced in business and I used him as a sounding board anyway.

    "Two years later I wanted to raise working capital for expansion, so I used the Department for Business, Enterprise and Regulatory Reform Small Firms Loan Guarantee scheme (now replaced by the Enterprise Finance Guarantee). Age wasn't a factor at all. It was my track record that counted, the partnerships I'd made and my growth strategy. We got R1 000,000 and can go back for another R1 500,000 if we reach certain targets."

    Show confidence
    "A lot of my contact with people when I started was over the telephone and nobody questioned my age because I came over in a professional manner, knew what I was talking about and wasn't frightened of negotiating with people. I think that makes a big difference."

    What I'd do differently
    Scrutinise my business plan regularly
    "I finalised my business plan when I got my finance and though I kept figures in my mind that I had to achieve I didn't look at the plan again properly until I entered the Shell Livewire competition. It was then, a year after starting up, that I discovered how high my packaging costs were and how that was impacting the business on a daily basis.

    "I managed to trim those costs down by about 40 per cent and it really affected profitability. If I'd looked at my business plan after, say, six months, I could have made the business leaner much sooner."

    Marc's top tips:
    • "Get as many facts and figures together as early as possible to back up your ideas."
    • "Find a mentor you can ask for advice and run new ideas past."
    • "Keep plugging away - even when you come up against obstacles."

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    Wednesday, September 09, 2009

    Business Idea: Micro Loan Guarantees Scheme

    This weeks business idea is all about business finance, albeit not the normal kind. Apart from the usual options to finance your business like bank loans, angel funding, Micro funding, covered recently in the Angel Investment Blog and of course venture capital, what about those who do not qualify for any of the above?

    Recently on Springwise, a really interesting business idea was discussed, that of Micro loan guarantees. Based on the idea of California-based nonprofit organisation United Prosperity does not provide funding for micro businesses but rather providing loan guarantees.

    A traditional micro loan or donation of R1000 delivers roughly that same amount to the entrepreneur in need, but providing a loan guarantee of the same amount can result in a much larger loan from a local bank, United Prosperity says—as much as R6000.00, in this case.

    How does it work: Potential guarantors browse the United Prosperity site, which features a number of pre-screened entrepreneurs in developing countries. They then choose one to help, and contribute a loan guarantee of any amount through PayPal. United Prosperity then consolidates the guarantees on multiple loans for the micro finance partner involved and issues a guarantee, which is deposited as collateral with the local bank. With the assurance of that collateral, the bank is then willing to lend funds—the amount depending on the guarantee percentage it requires—to the micro finance institution, which in turn lends to the individual entrepreneur who was supported. The guarantor can track the entrepreneur's progress building their business, and when the entrepreneur repays the loan, the funds are returned to the guarantor's PayPal account. United Prosperity, meanwhile, earns interest on guarantee funds; it's also considering charging its partners a small fee for providing the guarantee.

    Now in beta, United Prosperity cites many advantages to providing loan guarantees rather than simple p2p loans: the process allows recipients to develop a credit history, making future loans easier to obtain; it reduces the interest rates banks charge the micro finance institutions involved; and it better manages risk while providing a more scalable model. So far, 111 guarantors have used the site to help 105 entrepreneurs with more than USD 11,000 in guarantees. One to partner with, emulate, or otherwise get involved in...?

    Our Opinion:

    Strengths: Great idea for business investors who really want to make a difference. Also a great idea for the SA Government for that matter. Your investment (and small risk) go to a worthy cause, you get to give input and share your expertise. Small guarantee can grow into somethings substantial.

    Down Side:Its difficult to see a down side here. Of course your monetary returns wont be nearly as high as a fast growing tech start-up investment but that is about it.

    Conclusion: Great idea for both entrepreneurs and investors. As the entrepreneur behind the business you should not find it to hard to recruit investors, you should find it fairly easy to get a bank that goes along with the idea and although you may not make a fortune in cash, hundreds of livelihoods may be created and supported through your handy work.

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    Thursday, September 03, 2009

    Marketing Plan

    What is a marketing plan and what is the importance of this for someone writing a business plan, applying for business finance or starting a new business?

    During a conversation yesterday with a decision maker at a well known South African business finance provider, I was pleasantly surprised when the it came to light that funding institutions in South Africa are increasingly looking at the viability of the marketing plan attached to the business plan when someone is applying for business funding.

    To me this is logical. One of the biggest challenges a new business will face is to find and keep customers. It seems unthinkable that banks, SEDA, the IDC, angel investors and venture capital firms will not consider this part of your business strategy as key to future success.

    Take a minute to consider the start-up process. It really dies not matter how good your idea for a product or s service is. If know one knows about it, it will remain as that, a good idea. With frightening statistics about business closure rates being banded about in so many articles and blogs today, the solution is a simple one. As a business you need to focus on finding clients and keeping them.

    What is a marketing plan? Well it really depends on what type of business you are running. A marketing plan is a road map detailing the "route" you'll take to get your business noticed by potential clients. By following a properly crafted plan, you'll know what to do and why you're doing it, while avoiding some of the mistakes that can cost you money and future growth. When it comes to applying for business funding, the funding institution wants to know that you as an entrepreneur knows how to get your product to the market in such a way that those people buying your product will do so again in the future and maybe even tell their friends about you.

    Without getting into to much detail and boring you with theoretical speak at a basic level you still need to consider your:

    Product or service you will be selling and how that will benefit those buying it.
    The Price you will be charging and whether this can be used as a marketing tool and how it will help you attract your customers.
    Place of sale, whether it be on the internet, a physical location such as a shop, or which ever which way you can think of that is effective and cost efficient.
    The Promotional method or how people will come to know about your product
    The People who sell your product or service and this is especially important when dealing with people face to face. Your sales people and this providing the service is the face of your business, they need to reflect what you envision your business as being.

    When starting or running a business these issues need to be thought through carefully and implemented with attention to detail and adjusted on a regular basis based on what works and what does not. It not rocket science, but it needs a marketing plan and constant attention to detail.

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    Tuesday, September 01, 2009

    Business finance - Getting the best deal from your bank

    When applying for business finance through a bank there are a number of useful tips that you may want to consider to get the best deal from your bank. In the current economic climate where banks are a bit more risk averse and entrepreneurs often may op for alternative business finance its important that you know your way around the financing landscape.

    New business owners often turn to the bank that holds their personal account when finding funding, but you should compare charges from at least four banks (for example, how much does it cost for cheques, deposits, standing orders and overdraft facilities). If you’re already trading, changing banks is now much easier than it used to be and it could save you money. For more advice, read our guide to

    Many banks offer free business banking for a set period, but find out what charges apply after the introductory period. Ask what ‘free banking’ means – it may be free only if you’re in credit or your turnover is under a certain figure.

    When choosing a bank ask these questions:
     What support is offered? – Do they have a dedicated small business team, will you be allocated a specific adviser and is there support material, such as free websites and guides?
     What services do they offer? – For example, do they offer internet or telephone banking? If so, do they charge for this?
     How are charges levied? – Is there a fee per transaction or a one-off charge?
     How close is it to your premises? – If you’re likely to have a lot of transactions requiring you to visit the bank, then proximity is a key issue.

    How to keep banking costs down
     Negotiate with your bank manager – Everything is negotiable, from overdraft interest rates and charges to loan repayment schedules. Get any special terms in writing
     Reduce transactions – Try to avoid cash and cheques. Automation – direct debits, standing orders, internet banking – tends to be cheaper
     Review charges regularly – Ask your bank manager to suggest how to reduce charges  Earn interest – If you have extra funds, put them in a high-interest deposit account.

     Make sure the charges are correct – Check any discrepancies between statements  Avoid unauthorised overdrafts – Telephone and internet banking can help you keep track of your account, to see approaching problems What to do if the bank says ‘no’One in 10 business loans applications are rejected. If this happens, find out why, so you can then revise your plan and try again.

    There is also non-bank capital available. The South African Investors Network has a list of institutions that help fund businesses. Usually funding depends on the owners being from certain communities, age brackets or geographical locations, as well of course the viability of the business idea.

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